Stock of the Week

Truist Financial

December 28th 2020

Truist Financial Corp
Nasdaq symbol: TFC
Industry: banking
Price as of 12/20: $45.90

The major averages have performed spectacularly the last nine months following the bear market this spring. Techs, stay at home and COIVD-19 related stocks have performed the best. Going forward, money is starting to rotate into the sectors left behind due in part to the lockdown. Bank stocks have been held back due to low interest rates and high unemployment causing rising delinquencies on mortgages and credit cards. This past weekend, the Federal Reserve gave permission to the banks to start buying back stock once again. Many of the big banks announced they will start new buyback plans in 2021. JP Morgan announced a $30 billion buyback or 8% of their outstanding shares. This week we will highlight the 6th largest US bank, Truist Financial that pays a nearly 4% dividend and is poised to benefit from the reopening of the economy.

Truist Financial was formed last year from the merger of two equals, BB&T and SunTrust. Truist now provides financial services to around 10 million consumer households. The banks are centered in the southeastern with a 17-state footprint in many of the fastest growing regions. Back in October, Truist reported earnings of 97 cents a share beating estimates. Sales rose 85% year over to year to $5.6 billion due in large part to the merger. Provision for credit losses came in at $421 million for the third quarter, a modest build in the allowance for credit losses. Most banks have been reserving money for loan losses which could provide for a tailwind for earnings next year as the reserved money comes down or is brought back on the books as profits. During the first half of the year, 12 of the largest U.S. banks set aside $72 billion in loan-loss reserves.

Truist currently trades for 13 times reduced earnings, three times sales and 1.8 times tangible book value. Next year as the economy reopens, Truist earnings should get a boost from loan losses coming down while the states and regions they serve come back to life. Plus, Truist will continue to benefit from further cost cuts from the merger as well as its continued investments in technology. In the meantime, shareholders can enjoy the nearly 4% dividend while they wait for conditions to improve.

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