Regions Financial (RF +0.39%) is far from the perfect bank stock, but whenever its share price approaches $8 a share, it meets some resistance and cannot exceed the level. Is there some underlying reason investors are wary of Regions at this price? Let's take a deeper look and find out.
Who is Regions Financial?
Regions Financial is a regional bank based in Birmingham, Alabama. Though small when compared to the likes of JPMorgan Chase and Bank of America (BAC +0.72%), it is still the 22nd-largest bank holding company in the United States, with over $121 billion in assets. It currently operates in 16 states across the Southeastern and Midwestern United States, with over 1,700 branches and 2,100 ATMs.
A tale of two years
The past two years have been vastly different for Regions. In 2011, it was among the worst performing regional banks, reeling from a fourth consecutive year of annual losses. The share price lost over 39% over the course of the year, bottoming out around $3.00 a share at the beginning of October. The bank was struggling under the weight of $3.5 billion in TARP loans it was trying to pay back, but it ended 2011 looking to improve -- who wouldn't be? -- with big plans on how to do so.
Early in 2012, Regions was finally able to unload Morgan Keegan, its investment banking arm, to Raymond James Financial, a move that generated around $1 billion. Buoyed by this influx of cash, and continued improvement elsewhere at the bank, it was finally able to repay its TARP obligations in April of 2012, removing that collar from around its neck. It continued to shore up its balance sheet under CEO Grayson Hall, and its results since the end of 2011 have borne this out, with the bank beating the market handily:
Seem to have found a ceiling
Despite this stellar performance over the past 14 months, there seems to be an arbitrary limit set on how high the stock can climb. Earlier this month, it established a new 52-week high at $8.00 a share, though it has since been unable to stay there for long. Nevertheless, the consensus of analysts has the bank's upside pegged at $8.30 per share, so there is some optimism for the stock going forward.
In my opinion, it's only a matter of time before Regions bypasses this arbitrary threshold and approaches and exceeds what analysts are expecting. If 2012 was any indication, 2013 could end up being a strong year for the bank, and all of the traditional metrics bear this out. Its P/E ratio is below average at around 10.7, and it's currently trading at a 30% discount to book value.
The number of banks that trade around this level is fairly small, giving Regions a leg up when compared to other banks of similar size. Of banks with over $10 billion in market cap, only one other non-megabank trades at more than a 10% discount to book value:
|
Bank |
Market Cap |
P/E Ratio |
P/B Ratio |
|---|---|---|---|
|
Regions Financial |
$10.9B |
10.3 |
0.70 |
|
SunTrust (STI +0.00%) |
$14.9B |
7.7 |
0.71 |
|
BB&T (BBT +1.58%) |
$21.0B |
11.1 |
0.99 |
|
PNC Financial Services (PNC +1.10%) |
$33.4B |
12.8 |
0.94 |
Source: FinViz.com.
The only bank I was able to find trading at a much steeper discount to book value than Regions was Bank of America, which trades at nearly half of book value. However, Bank of America is a much more complicated entity than Regions, and with looming litigation and over $136 billion in toxic mortgage assets, I think that there are better options out there, and Regions Financial could be one of them.
Share price doesn't really matter
If you look past Regions' inability to exceed $8 a share, you find a bank that is still cheap compared to a lot of other banks out there. If it can return even half of what it did last year, it will be a massive success. This year could be the start of a return to relevancy for the "small" bank from Alabama, and it might be worth taking the ride.
