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Truist Financial (TFC): Analyzing Signals Prior to Earnings Call

With rising expenses and persistent branch closures, Truist Financial's (TFC) growth prospects seem to be under pressure. In light of these challenges and its fiscal fourth-quarter release right around the corner, does it appear wise to invest in TFC shares? Read more to find out...

Truist Financial Corporation (TFC) is set to unveil its fiscal 2023 fourth quarter financial results on January 18. Analysts estimate the quarter’s revenue to decrease 8.8% year-over-year to $5.71 billion. Additionally, the company's EPS is projected to decline 31.1% from the corresponding period last year, reaching $0.90. 

Established in December 2019 through a "merger of equals" between BB&T and SunTrust Banks, TFC stands as the seventh largest U.S. commercial bank by assets. Initially anticipating $1.6 billion in annual cost savings by 2022, the reality has seen persistent expense increases, hindering TFC's growth prospects.

In response to a $750 million cost-cutting initiative, TFC is implementing branch closures as part of a broader strategy reset. The consolidation of commercial and community banking regions, merging of consumer and wholesale payments, and unification of commercial real estate operations aim to streamline, but challenges persist.

TFC's plan to close 4% of its branch network, around 80 locations, signals a concerning trajectory. With 2,006 branches across 17 states and Washington, D.C., as of December 29, 2023, this move might impede the bank's accessibility and customer reach. Shares of TFC have plummeted 23.3% over the past year to close the last trading session at $36.18.

Here are the financial aspects of TFC that could influence its performance in the near term:

Weak Financials

For the fiscal 2023 third quarter that ended September 30, 2023, TFC’s net interest income decreased 4.8% year-over-year to $3.56 billion. Its income before income taxes declined 28.6% from the year-ago value to $1.43 billion.

Additionally, the company’s net income and EPS reduced 27.7% and 30.4% from the prior year’s period to $1.18 billion and $0.80, respectively.

Mixed Historical Growth

Over the past three years, TFC’s total assets increased at a CAGR of 2.8%. However, its tangible book value decreased at a CAGR of 10.8%. In addition, the company’s common equity declined at a 3.7% CAGR over the same time frame.

Unoptimistic Analyst Estimates

The consensus revenue estimate of $5.68 billion for the fiscal 2024 first quarter ending March 2024 indicates a 7.7% year-over-year decrease. Likewise, the consensus EPS estimate of $0.83 for the current quarter exhibits a 24.3% decline from the prior year’s quarter.

Mixed Profitability

The stock’s trailing-12-month ROCE of 9.75% is 16.9% lower than the 11.72% industry average. Furthermore, its trailing-12-month ROTA of 1.05% is 9.7% lower than the industry average of 1.16%.

POWR Ratings Exhibit Bleak Prospects

TFC’s weak outlook is apparent in its POWR Ratings. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. TFC has a D grade for Sentiment, reflected in its poor analyst estimates. It also has a D grade for Growth, which is in sync with its weak financials in the last reported quarter. In addition, the stock has a C grade for Stability, evidenced by its 24-month beta of 1.14.

The stock is ranked #13 out of 27 stocks in the F-rated Southeast Regional Banks industry. Click here to access TFC’s Value, Momentum, and Quality ratings.

Bottom Line

TFC might face hindrances to long-term growth due to persistent expense increases despite an initial merger's anticipated cost savings. Moreover, branch closures and strategic resets aimed at cost-cutting could impede accessibility and customer reach, posing challenges to the bank's trajectory.

Furthermore, the company's less-than-ideal stability and profitability present a concerning image. Given this less-than-ideal situation, it could be prudent to avoid TFC for the time being.

How Does Truist Financial Corporation (TFC) Stack Up Against Its Peers?

While TFC has an overall grade of D, equating to a Sell rating, you may check out these other B (Buy) stocks within the Foreign Banks industry: Banco Santander, S.A. (SAN), Erste Group Bank AG (EBKDY), and KB Financial Group Inc. (KB). To explore more Foreign Banks stocks, click here

What To Do Next?

Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:

10 Stocks to SELL NOW! >

TFC shares were unchanged in premarket trading Wednesday. Year-to-date, TFC has declined -2.00%, versus a -0.08% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.


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