BUSINESS
Regions Financial Corporation, a financial holding company, provides banking and bank-related services to individual and corporate customers. It operates through three segments: Corporate Bank, Consumer Bank, and Wealth Management. The Corporate Bank segment offers commercial banking services, such as commercial and industrial, commercial real estate, and investor real estate lending; equipment lease financing; deposit products; and securities underwriting and placement, loan syndication and placement, foreign exchange, derivatives, merger and acquisition, and other advisory services. It serves corporate, middle market, and commercial real estate developers and investors. The Consumer Bank segment provides consumer banking products and services related to residential first mortgages, home equity lines and loans, consumer credit cards, and other consumer loans, as well as deposits.
INVESTMENT RATING
RF is expected to continue to be an important Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Regions Financial has a current Value Trend Rating of A (Highest Rating).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Regions Financial has a slightly positive Power Rating of 69 and a good Appreciation Score of 83, leading to the Highest Value Trend Rating.
Regions Financial’s stock is selling well below targeted value. The current stock price of $19.18 compares to targeted value 12 months forward of $51.
Regions Financial’s high appreciation potential results in an appreciation score of 83 (only 17% of the universe has greater appreciation potential.)
Regions Financial has a Power Rating of 69. (RF’s slightly positive Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 31% of companies in the universe.)
Factors contributing to this slightly positive Power Rating include: the recent trend in RF’s earnings estimates has been extremely favorable; the Commercial Banks comparison group is in a strong phase currently; and recent price action has been neutral.
INVESTMENT PROFILE
RF’s financial strength is exceptional. Financial strength rating is 92.
Relative to the S&P 500 Composite, Regions Financial Corp has moderate Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that RF is lower risk. Low financial leverage is a positive for RF. Relative weaknesses include: low forecasted profitability, low historical profitability, and low expected growth. RF’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. RF has low market capitalization.
CURRENT SIGNALS
Regions Financial’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; and falling leverage.
Regions Financial’s current technical position is very strong. The stock price is in a 4.4 month up move. The stock has appreciated 40.5% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Regions Financial Corp (NYSE: RF) has recently experienced significant negative changes in investment behavior: its shorter term price trend turned down.
The stock is currently rated A.
Regions Financial Corp (NYSE: RF) stock rose modestly by 0.7% on 3/18/24. The stock closed at $19.18. However, unusually low trading volume at 53% of normal accompanied the advance. The stock has declined -2.6% during the last week and has performed in line with the market over the last nine months.
CASH FLOW
In 2023, Regions Financial experienced a very significant reduction in cash of -$4,426 million (-39%). Sources of cash were much lower than uses. Cash generated from 2023 EBITDA totaled +$3,906 million. Non-operating uses consumed -$1,299 million (-33% of EBITDA). Cash taxes consumed -$533 million (-14% of EBITDA). Re-investment in the business amounted to -$5,936 million (-152% of EBITDA). On a net basis, debt investors furnished +$28 million (+1% of EBITDA) while equity investors received -$592 million (-15% of EBITDA).
Regions Financial’s Non-operating Income, %EBITDA has exhibited a very small overall uptrend over the period. This improvement was accompanied by a similar trend for the Regions Financial Peer Group. (Since 2021 Non-operating Income, %EBITDA has experienced a very sharp decline.) In most years, Regions Financial was in the third quartile and second quartile. Currently, Regions Financial is at median at -33% of EBITDA (-$1,299 million).
Regions Financial’s Cash Taxes, %EBITDA has exhibited a very small overall uptrend over the period. This improvement was accompanied by a similar trend for the Regions Financial Peer Group. In most years, Regions Financial was in the second quartile and lower quartile. Currently, Regions Financial is below median at -14% of EBITDA (-$533 million).
Regions Financial’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Regions Financial Peer Group. In most years, Regions Financial was in the second quartile and top quartile. Currently, Regions Financial is below median at -152% of EBITDA (-$5,936 million).
Regions Financial’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Regions Financial Peer Group. (Since 2020 Debt Investors, %EBITDA has experienced a very sharp recovery.) In most years, Regions Financial was in the lower quartile and top quartile. Currently, Regions Financial is below median at +1% of EBITDA (+$28 million).
Regions Financial’s Equity Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Regions Financial Peer Group. In most years, Regions Financial was in the third quartile and lower quartile. Currently, Regions Financial is substantially below median at -15% of EBITDA (-$592 million).
Regions Financial’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Regions Financial Peer Group. In most years, Regions Financial was in the top quartile and lower quartile. Currently, Regions Financial is lower quartile at -113% of EBITDA (-$4,426 million).
Regions Financial’s Cash, %Revenue has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Regions Financial Peer Group. (Since 2021 Cash, %Revenue has experienced a very sharp decline.) In most years, Regions Financial was in the third quartile and second quartile. Currently, Regions Financial is at the lower quartile at +74%.
PROFITABILITY
Regions Financial’s return on equity has improved very significantly since 2014. The current level of 13.2% is 1.84X the low for the period and is -13.5% from the high.
This very significant improvement was due to strong positive trend in pretax operating return supported by very strong positive trend in non-operating factors.
The productivity of Regions Financial’s assets rose over the full period 2014-2023: asset turnover has exhibited a minor overall uptrend that accelerated very sharply after the 2021 level.
Reinforcing this trend, pretax margin has exhibited a volatile overall uptrend although it experienced a very sharp decline after the 2021 high.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Regions Financial’s return on equity is at the upper quartile (13.2%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is upper quartile (1.7%) reflecting asset turnover that is at the upper quartile (0.06X) and pretax margin at the upper quartile (28.5%).
Tax “keep” rate (income tax management) is at median (79.6%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is at median (9.65X).
GROWTH RATES
Overall, Regions Financial’s growth rate has slowed very considerably in recent years.
Regions Financial’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 9.4% per year.
Total asset growth has been 7.2% per year. (More recently it has been -2.1%.)
Annual E.P.S. growth has been 12.6% per year. (More recently it has been -7.7%.)
Equity growth has been 4.0% per year. (More recently it has been -0.6%.)
Regions Financial’s consensus growth rate forecast (average of Wall Street analysts) is -0.3% — substantially below the average of the historical growth measures.
Relative to the Regions Financial Peer Group, Regions Financial’s historical growth measures are erratic. E.P.S. growth (12.6%) has been upper quartile. Revenue growth (9.4%) has been above median. Equity growth (4.0%) has been substantially below median. Total asset growth (7.2%) has been below median.
Consensus growth forecast (-0.3%) is substantially below median.
PRICE HISTORY
Over the full time period, Regions Financial’s stock price performance has been variable and below market. Between May, 2013 and March, 2024, Regions Financial’s stock price rose +110%; relative to the market, this was a -33% loss. Significant price moves during the period: 1) March, 2020 – May, 2021: +161%; and 2) February, 2016 – August, 2018: +159%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -15.2% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -15.2% is slightly above median relative to Regions Financial Corp Peer Group.
Current 5-year total return performance of 7.2% is below median relative to the S&P 500 Composite.
Through February, 2024, with below median current 5-year total return of 7.2% relative to S&P 500 Composite, Regions Financial’s total return performance is upper quartile relative to Regions Financial Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, RF’s overall valuation is quite low. Four of five factors are lower quartile. The highest factor is the ratio of enterprise value/revenue, followed by the ratio of enterprise value/earnings before interest and taxes, then by the price/earnings ratio, then by the price/equity ratio. The lowest factor, ratio of enterprise value/assets, is lower quartile.
Relative to Regions Financial Peer Group, RF’s overall valuation is quite low. The highest factor, the price/equity ratio, is at the upper quartile. Price/earnings ratio is lower quartile. Ratio of enterprise value/assets is at the lower quartile. Ratio of enterprise value/revenue is lower quartile. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is lower quartile.
Regions Financial has a major value gap compared to the median. For RF to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 2.24X to 3.53X. If RF’s ratio of enterprise value/revenue were to rise to 3.53X, its stock price would be higher by $13 to $32.
For RF to achieve upper quartile valuation relative to the Regions Financial Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 2.24X to 3.76X. If RF’s ratio of enterprise value/revenue were to rise to 3.76X, its stock price would increase by $15 from the current level of $19.
VALUE TARGETS
RF is expected to continue to be an important Value Builder reflecting capital returns that are forecasted to be above the cost of capital.
Regions Financial’s current Price Target of $53 represents a +174% change from the current price of $19.18.
This high appreciation potential results in an appreciation score of 83 (only 17% of the universe has greater appreciation potential.)
Reinforcing this high Appreciation Score of 83, the moderately high Power Rating of 69 contributes to an Value Trend Rating of A.
Regions Financial’s current Price Target is $53 (-11% from the 2023 Target of $59 but +174% from the 03/18/24 price of $19.18). This slight fall in the Target is the result of a +1% increase in the equity base and a -12% decrease in the price/equity multiple. The forecasted increase in return on equity has a slight positive impact on the price/equity multiple and the forecasted decline in cost of equity has a very slight positive impact as well. More than offsetting these Drivers, the forecasted decline in growth has a large negative impact.
PTR’s return on equity forecast is 12.2% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is well above the 2020 low of 6%.
PTR’s growth forecast is 6.0% — below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2017 and 2023. The current forecast is above the 2017 low of 3%.
PTR’s cost of equity forecast is 6.4% — in line with recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is above the 2016 low of 3.6%.
At Regions Financial’s current price of $19.18, investors are placing a negative value of $-4 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 11.0% per year, and a return on equity of 11.5% versus a cost of equity of 6.5%.
PTR’s 2025 Price Target of $53 is based on these forecasts and reflects an estimated value of existing assets of $26 and a value of future investments of $27.
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