Regions Financial stock reaffirms hold rating on Q4 results

On Friday, Truist Securities maintained a Hold rating on Regions Financial (NYSE:RF) shares with a steady price target of $25.00. According to InvestingPro data, the stock currently trades at $24.52, with analyst targets ranging from $22 to $32, reflecting mixed market sentiment.

The company's shares have shown strong momentum, delivering a remarkable 43% return over the past year. The financial firm's guidance for 2025 indicates a Net Interest Income (NII) increase of 2-5%, which could potentially reach $5.0 billion, surpassing the consensus estimates. This projection, however, encompasses a broad range, with further details provided on the factors that could influence the higher or lower end outcomes.

Regions Financial's loan growth is expected to be around 1%, and deposit levels are projected to remain unchanged, both slightly trailing behind the consensus. Fee income is anticipated to rise by 2-4%, which is modestly below the consensus prediction of a 5% increase.

On the upside, the company's expense growth is projected at 1-3%, more favorable than the 3% expected by the consensus. Charge-offs are forecasted to be between 40-50 basis points, with the upper end being more likely, aligning closely with the consensus of 48 basis points. The tax rate is estimated to be 20-21%, which is consistent with consensus views.

In the short term, Regions Financial is focusing on strengthening its Common Equity Tier 1 (CET1) ratio, including the impact of Accumulated Other Comprehensive Income (AOCI), to reach its operational range of 9.25-9.75%, up from 8.8% in the fourth quarter. Worth noting, InvestingPro analysis shows the company maintains a "GOOD" overall financial health score of 2.65, with particularly strong marks in profit and price momentum metrics.

The bank has also demonstrated remarkable dividend consistency, having maintained payments for 21 consecutive years with a current yield of 4.08%. Consequently, share buybacks might be deprioritized for the time being. This was hinted at during the Goldman Sachs conference in December, yet analysts had still anticipated a 1% buyback of outstanding shares in the first half of 2025.

For the first quarter trends, NII is expected to decrease slightly due to the "dreaded day count." Capital markets revenue is predicted to be $80-90 million per quarter in the near term, which is within the expected range.

The growth in commercial deposits seen in the fourth quarter is largely attributed to seasonal factors and is predicted to revert in the first quarter, with modest deposit growth foreseen in the second quarter and thereafter. While no specific guidance was given for first-quarter expenses, there is an acknowledgment of a $30 million seasonal increase.

Regions Financial reported fourth-quarter earnings per share (EPS) of $0.56, aligning with consensus figures. Trading at a P/E ratio of 14.05, the stock's valuation metrics warrant attention. For deeper insights into Regions Financial's valuation and growth prospects, InvestingPro subscribers can access comprehensive analysis, including additional ProTips and detailed financial metrics in the Pro Research Report, part of the platform's coverage of over 1,400 US stocks.

An adjusted EPS of $0.59 was noted after excluding the securities repositioning charge. NII for the fourth quarter was 1% above consensus and saw a 4% quarter-over-quarter increase, with a net interest margin (NIM) of 3.55%, slightly higher than the 3.53% projected by the Street. This improvement was attributed to an unexpectedly high deposit beta of 34% and repricing of fixed assets. Although fees were reported to be soft, expenses came in slightly below expectations.

Actual charge-offs for the fourth quarter were reported at 49 basis points, somewhat better than the 53 basis points anticipated by the consensus. Non-performing loans (NPLs) saw an 11% quarter-over-quarter increase, driven by office commercial real estate, senior housing, and trucking sectors.

However, criticized assets remained stable, and the charge-off guide for 2025 suggests a flat to downward trend, indicating potential improvement in asset quality. The quarter also included a $30 million loss from repositioning $0.7 billion of securities, a recurring activity for Regions Financial.

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