Friday, Credit Suisse initiated coverage of Fifth Third Bancorp (FITB) stock with an Outperform rating and a price target of $15. The brokerage established its 2009 fourth quarter loss per share estimate of $0.44, and its 2010 loss estimate of $0.68.
Analyst Siegenthaler believes the FITB stock provides the highest risk-adjusted upside potential in his regional bank universe. The analyst forecasts $1.75 of normalized EPS and apply a normalized PE multiple of 12-14 times, implying that the stock could trade up to the low twenties (140% to 145% potential upside) over the next three years (34% annualized).
Additionally, the analyst sees downside as limited given that he estimates trough "stressed" tangible book value to be $7.10 which is 25% below the current stock price (if he increased his NCO forecast by 50%).
Specifically, the analyst believes that given FITB's high reserve levels: the company would be able to reduce reserves in 2010 - 2012, benefiting both capital levels and EPS, FITB's capital ratios are understated vs. peers, and that even if he increased his 2010 net charge-off forecast by 50%, FITB will remain adequately capitalized as its trough Tier 1 Common ratio would still be 220bps higher than the regulatory threshold.
The analyst would look for the Y-9C filing, to be released by November 15, as the next catalyst for FITB. The filing will offer greater granularity on delinquency and loss trends by loan mix.
Currently, FITB is up $0.25 or 2.62% and trading at $9.79.
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