BB&T Corporation's (BBT) 2Q08 diluted operating earnings came in at $0.69 per share, a penny ahead of consensus.
The results were supported by 11 bps sequential expansion in the net interest margin and strong growth in fee-based income. While the loan growth was healthy, non-performing assets and net charge-offs rose sharply due to further deterioration in the residential real estate markets.
After reviewing the results, we are moderating our FY08 and FY09 EPS estimates to $2.82 per share and $3.16 per share from $3.01 per share and $3.25 per share, respectively. Though the company is in somewhat better position than many of its peers due to its diversified revenue base, strong capital structure and impressive loan and deposit growth; continued deterioration in the housing markets will keep the credit related costs high through FY08 and a part of FY09.
BBT currently trades at 10.4 times the consensus forward estimate, a 22% discount to the peer group median. On a price-to-book basis, the shares are now trading at 48% premium to the peer median, versus 29% premium earlier. Relative pricing continues looks attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. BBT's PEG ratio is 1.58, a 25% discount to the 2.10 median for the peer group.
On a price-to-book basis, the premium of 48% also looks good, given a ROE of 103% above median. Our six-month price target of $27.50 per share equates to 9.8 times our 2008 EPS estimate. The company has increased its dividend for 3Q08 to $0.47 per share. With the $1.88 per share annual dividend, this target price implies about 3.6% expected total return over the period. We are thus keeping our rating unchanged at Hold.
Kalyan Nandy contributed to the report.
Read the full analyst report on BBT
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