Valuation Scorecard: Stock Rating A-Highest (4/5/24)-Regions Financial Corp (RF).

Regions Financial’s common shares will need to reach $34 to achieve average annual stock market performance of 9.0% over the next 6 years. Regions Financial’s stock price will need to reach $40 by 2029 to achieve upper quartile performance. What is the market’s view of Regions Financial’s future operating performance as reflected in the current price of $20?

Executive Summary

• Regions Financial’s important characteristics: high financial strength, very high profitability, above average expected growth, and low stability. A big positive influence on Regions Financial’s valuation is its superior Risk Profile.
• Very high valuation, average shareholder returns. Current valuation levels are very high relative to the Regions Financial Peer Group. Recent market returns have tracked the Regions Financial Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Regions Financial shares should reach a level of $63 by 2029 — an 24.5% per year total shareholder return. A 2029 stock price of $34 would reflect median performance and a price of $40 would be required to reach upper quartile performance.
• Regions Financial’s historical growth is average. Historical growth has been average relative to the Regions Financial Peer Group and forecasted growth is relatively average. EPS Growth has been superior. Asset Growth has lagged. Regions Financial’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity. Regions Financial’s consensus growth expectations are in line with past growth.
• Pretax ROA, Return on Equity, Pretax Margin, and Asset Turnover are all group leading. These factors have strengthened market perceptions of Regions Financial. The company has high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
• Risk Profile has been Regions Financial’s biggest valuation strength. Regions Financial’s risk profile is very favorable. Overall variability has been very low with very low revenue variability, very high E.P.S. variability, and above average stock price volatility. Financial Strength is relatively very high and earnings’ expectations are relatively very high. The debt/capital ratio has declined very significantly.

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