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Few regional banking stocks in the U.S. today cost more than BB&T (NYSE: BBT ) stock. Indeed, the stock's biggest distinguishing factor is probably its priciness. Valued at 14.1 times trailing earnings, shares of BB&T cost 14% more than bigger rival US Bancorp (NYSE: USB ) , and 33% more than smaller Fifth Third Bancorp (NASDAQ: FITB ) . But is there a good reason for investors to pay up for BB&T stock?
That's what we're going to try to find out today, as we examine a couple of predictions Wall Street analysts are making about the stock ... and then turn to a prediction of my own.
Prediction No. 1: So-so sales
Wall Street analysts see BB&T's revenues growing from $9.8 billion last year, to about $10.2 billion by 2015. That's about 4.1% revenue growth -- total -- across three years' time. And it's smack-dab in the middle between the faster rate at which USB is expected to grow (6.4%) and the slower rate of Fifth Third (2.5%).
Projected Revenues (in Millions)
So far, this does not appear to support the case that BB&T stock deserves a premium P/E valuation.
Prediction No. 2: Premium profits
Yet if BB&T isn't exactly tearing up the track on revenue growth, it's expected to do a much better job turning those revenues into profits.
Analysts see BB&T growing its per-share profits nearly 26% over the next three years, to $3.40 per share. That edges out USB, the stock that's currently most profitable of the three, on an operating profit margin basis. USB is expected to grow its profits just a hair over 24% over the same period, to $3.53 per share. (And once again, Fifth Third comes in third place, with projected per-share profits of just $1.95 in 2015, and projected total earnings growth of only 17.5%.)
Projected Earnings Per Share
Prediction No. 3: Bigger is better
So basically, BB&T stock today offers the opportunity to own a middling revenue grower, with superior profits potential. But is the price right?
Not quite -- and that's the third and final prediction about BB&T stock today: my own belief that BB&T stock is not likely to outperform the rest of the stock market going forward. You see, priced at more than 14 times earnings today, BB&T shares appear overvalued for the 8.3% long-term earnings growth rate that analysts assign to them. The company's superior 2.7% dividend yield helps to close the valuation gap, but even so, 14 times earnings seems a bit much to pay for 8% growth.
Mind you, I still think BB&T is a better buy than Fifth Third, whose stock price has grown fastest this year, and grown out of all proportion to its prospects for growing earnings in future years. But if you ask me, the closest thing to a bargain in these three stocks is to be found in shares of US Bancorp.
USB's earnings are expected to grow a bit faster than BB&T's in outlying years (past 2015). So even if USB's dividend yield (2.2%) is a bit less generous, and even if its price-to-book ratio is a bit more expensive, I think the growth argument carries the day, and UBS is a better bet than BB&T.
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