Regions: Buyback's Bank Bet

11/30/2016 9:00 am EST


David Fried

Editor, The Buyback Letter

We've bought and sold this banking stock in our model portfolio several times this year; it has floated to the top of our list again, suggests David Fried, editor of The Buyback Letter.

Regions Financial Corp. (RF)  is a leading regional bank in the southeastern U.S. It has about $125 billion in assets and is the 17th largest bank in the U.S. (based on assets).

Regions serves customers in 16 states across the South, Midwest and Texas, and through its subsidiary, Regions Bank, operates some 1,600 banking offices and 2,000 ATMs.

Shares of Regions climbed double digits so far this year, and analysts find strength in a number of areas:

* Regions is taking steps to diversify its revenue stream.

* The bank is focused on controlling costs, including a $300-million expense reduction through consolidating up to 150 branches by 2018.

* An undervalued stock. RF’s P/E ratio of about 14x compares favorably to the industry average of 15.64x

Regions -- like other financial institutions -- faced major problems during the 2008-09 meltdown and its recovery was slow.

However, management has done a good job of returning to banking basics and strengthening the loan portfolio while also expanding the bank’s customer and asset base.

Strong cost-cutting initiatives and shareholder-friendly dividend and repurchase activities have rewarded shareholders. 

Q3 showed the company beating analyst expectations, with a $304 million profit, an increase of 26% over the prior year.

This compared to $275 million in the Q2 and $262 million a year ago. EPS of 24 cents beat analyst expectations by 3 cents per share.

Region is increasing its buybacks. It got approval to increase the 2016 repurchase program from $640-$760 million, and intends to hike its quarterly dividend in 2017. Overall, RF has reduced shares outstanding by 5.49% in the past 12 months.

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