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High Rates, Restructuring Aid Truist (TFC) Amid Cost Woes
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Truist Financial (TFC - Free Report) is expected to witness continued top-line growth on the back of decent loan demand, high interest rates, strategic restructuring initiatives and efforts to improve fee income.
Analysts seem optimistic regarding the company’s earnings growth potential. Over the past 60 days, the Zacks Consensus Estimate for Truist’s 2024 earnings has been revised 1% upward.
In the past year, TFC shares have gained 23.5% compared with the industry’s growth of 32.6%.
Image Source: Zacks Investment Research
However, elevated expenses and poor asset quality might hurt the company’s financials to an extent. Thus, Truist currently carries a Zacks Rank #3 (Hold).
Looking at its fundamentals, while TFC’s net interest income declined in 2021 and the first quarter of 2024, the metric witnessed a five-year (ended 2023) compound annual growth rate (CAGR) of 16.9% on the back of decent loan demand, the merger deal and rising rates.
Likewise, the company’s net interest margin (NIM) improved to 3.01% in 2022 from 2.86% in 2021, driven by higher rates. While NIM declined marginally to 3.00% in the first quarter of 2024, the company is expected to witness decent growth in margins in the near term, supported by a high interest rate environment. An increase in funding costs might put some pressure on margin growth. We expect NIM to be 2.94%, 3.03% and 3.10% in 2024, 2025 and 2026, respectively.
Truist remains focused on growth of non-interest revenue sources. While the metric declined in 2022, the same witnessed a five-year (2018-2023) CAGR of 12.5% mainly on the back of the merger deal, and strength in wealth management and insurance businesses. The upward trend continued in first-quarter 2024. While we expect total non-interest income to decline in 2024 (mainly because of the securities loss that will be incurred in the second quarter because of the balance sheet repositioning), the metric is expected to rise significantly in 2025.
Management remains open to strategic business restructuring initiatives. In May 2024, the company completed the deal to sell the remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings (“TIH”) — to Stone Point Capital and Clayton Dubilier & Rice. In April 2023, Truist divested 20% stake in TIH for $1.95 billion. Earlier, the company acquired Service Finance Company, which augmented its point-of-sale lending business. Driven by these restructuring efforts, Truist is expected to witness growth in the top line.
However, TFC’s expenses witnessed a CAGR of 25.4% over the last five years (2018-2023). The increase was mainly due to a rise in personnel expenses, the company’s efforts to bolster digitization and the merger deal. While Truist’s first-quarter 2024 expenses declined year over year and its strategic expense-saving program is expected to result in $750 million of gross savings (excluding one-time severance charges), its overall costs are anticipated to be elevated in the near term, primarily owing to investments in technology upgrades.
Further, Truist’s asset quality has been deteriorating. Provision for credit losses witnessed a CAGR of 30.1% over the five years ended 2023. While the company recorded negative provisions in 2021, a substantial jump in provisions was recorded in 2022 and 2023 on the worsening macroeconomic outlook. Provisions declined in the first three months of 2024. However, an upward trend in the metric is expected in the near term. We expect provision for credit losses to rise 4.3% this year.
The consensus estimate for FCBC’s current year’s earnings has been revised 8.8% upward over the past 60 days. Over the past year, FCBC’s share price has increased 18.9%.
OBK’s current-year earnings estimates have been revised 2.3% upward over the past 60 days. OBK shares have gained 2.7% over the past year.
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High Rates, Restructuring Aid Truist (TFC) Amid Cost Woes
Truist Financial (TFC - Free Report) is expected to witness continued top-line growth on the back of decent loan demand, high interest rates, strategic restructuring initiatives and efforts to improve fee income.
Analysts seem optimistic regarding the company’s earnings growth potential. Over the past 60 days, the Zacks Consensus Estimate for Truist’s 2024 earnings has been revised 1% upward.
In the past year, TFC shares have gained 23.5% compared with the industry’s growth of 32.6%.
Image Source: Zacks Investment Research
However, elevated expenses and poor asset quality might hurt the company’s financials to an extent. Thus, Truist currently carries a Zacks Rank #3 (Hold).
Looking at its fundamentals, while TFC’s net interest income declined in 2021 and the first quarter of 2024, the metric witnessed a five-year (ended 2023) compound annual growth rate (CAGR) of 16.9% on the back of decent loan demand, the merger deal and rising rates.
Likewise, the company’s net interest margin (NIM) improved to 3.01% in 2022 from 2.86% in 2021, driven by higher rates. While NIM declined marginally to 3.00% in the first quarter of 2024, the company is expected to witness decent growth in margins in the near term, supported by a high interest rate environment. An increase in funding costs might put some pressure on margin growth. We expect NIM to be 2.94%, 3.03% and 3.10% in 2024, 2025 and 2026, respectively.
Truist remains focused on growth of non-interest revenue sources. While the metric declined in 2022, the same witnessed a five-year (2018-2023) CAGR of 12.5% mainly on the back of the merger deal, and strength in wealth management and insurance businesses. The upward trend continued in first-quarter 2024. While we expect total non-interest income to decline in 2024 (mainly because of the securities loss that will be incurred in the second quarter because of the balance sheet repositioning), the metric is expected to rise significantly in 2025.
Management remains open to strategic business restructuring initiatives. In May 2024, the company completed the deal to sell the remaining 80% stake in its insurance subsidiary — Truist Insurance Holdings (“TIH”) — to Stone Point Capital and Clayton Dubilier & Rice. In April 2023, Truist divested 20% stake in TIH for $1.95 billion. Earlier, the company acquired Service Finance Company, which augmented its point-of-sale lending business. Driven by these restructuring efforts, Truist is expected to witness growth in the top line.
However, TFC’s expenses witnessed a CAGR of 25.4% over the last five years (2018-2023). The increase was mainly due to a rise in personnel expenses, the company’s efforts to bolster digitization and the merger deal. While Truist’s first-quarter 2024 expenses declined year over year and its strategic expense-saving program is expected to result in $750 million of gross savings (excluding one-time severance charges), its overall costs are anticipated to be elevated in the near term, primarily owing to investments in technology upgrades.
Further, Truist’s asset quality has been deteriorating. Provision for credit losses witnessed a CAGR of 30.1% over the five years ended 2023. While the company recorded negative provisions in 2021, a substantial jump in provisions was recorded in 2022 and 2023 on the worsening macroeconomic outlook. Provisions declined in the first three months of 2024. However, an upward trend in the metric is expected in the near term. We expect provision for credit losses to rise 4.3% this year.
Stocks Worth Considering
A couple of better-ranked stocks from the finance space are First Community Bankshares, Inc. (FCBC - Free Report) and Origin Bancorp, Inc. (OBK - Free Report) . Currently, FCBC and OBK carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for FCBC’s current year’s earnings has been revised 8.8% upward over the past 60 days. Over the past year, FCBC’s share price has increased 18.9%.
OBK’s current-year earnings estimates have been revised 2.3% upward over the past 60 days. OBK shares have gained 2.7% over the past year.