Why SunTrust Banks, Inc. Shares Could Fly Above $45

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of SunTrust Banks  (NYSE: STI  ) climbed 1.5% today after Keefe, Bruyette & Woods upgraded the bank holding company from market perform to outperform.

So what: Along with the upgrade, analyst Christopher Mutascio raised his price target to $46 (from $41), representing about 16% worth of upside to Friday's close. So, while contrarian traders might be turned off by SunTrust's steady price strength over the past year, Mutascio's call could reflect a sense on Wall Street that its growth and cost-savings potential still aren't fully baked into the valuation.

Now what: According to Keefe, SunTrust's risk/reward trade-off is particularly attractive at this point. "The reasons for the upgrade include 1) most potential upside to our revised target prices, 2) concerns about reduced swap income have weighed on the shares but seem manageable, 3) generating the best loan growth within our large cap bank coverage, 4) the potential inflection in loan loss provision expense represents a materially lower drag on earnings than most banks and denotes high earnings quality, and 5) continued cost save initiatives represent another potential lever -- not the only lever," said Mutascio.

When you couple those juicy catalysts with SunTrust's still-reasonable price-to-book of 1, it's tough to disagree with Keefe's upgrade. 

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