Regions (RF) Stock Valuation, Technical Analysis & Favorable Catalysts
This article is a continuation of the previous RF article, “Regions Financial (RF) Turns in a Profit! (Fundamentals)”, which presented an overview of Regions Financial (RF) stock potential from a fundamental analysis and stock valuation perspective. This Part II article presents an overview of RF’s stock potential from a technical, favorable catalysts and overall bottom line perspective.
- Technical Perspective
At the time of this analysis, RF is trading around $8, which is slightly below the upper value of its 52-week trading range of between $5.45 and $8.44. The stock was trading at $6.54 at close of business on April 2, 2012, which means it has risen by approximately 22.63% over the course of the year.
In the period between mid-Oct and mid-Dec 2012, the stock seemed to be trading mostly sideways in a pattern that many technical observers would call "base building". Towards the end of Dec 2012, and for most of 2013, the stock used that base to launch a comeback, breaking resistance at its 50, 100 and 200-day SMAs to reach new 52-week highs.
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Several significant events in early 2013 could account for the stock's gradual uptick. These include a 2012 Q4 and annual profit announcement in late Jan 2013, and a March 14th announcement of the approval of RF's Comprehensive Capital Analysis and Review (CCAR) plan by the Federal Reserve, including a shares repurchase proposal and a plan for increasing the company’s quarterly common dividend to $0.03 per share.
For most of March 2013 we have seen the stock finding support above its 50-day SMA, which may indicate that it is primed to go higher from its current levels.
- Favorable Catalysts
The renewed focus on a full spectrum of regional residential and commercial banking products and services, after having jettisoned its brokerage and investment banking arms, bodes well for RF. However, faced with a low-interest environment and a slow growing U.S. economy, sustaining stellar performance like it did in 2012 may prove to be difficult. In the words of the company’s management (in their 10K filing), "If current economic conditions persist into 2013, growing net interest income and the resulting net interest margin will be challenging."
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On the flip-side of this assessment, should economic conditions improve better or faster than anticipated, as a bank that is "free from government encumbrances", RF's balance sheet is primed to capitalize on even a slight increase in interest rates.
Either way, whether the U.S. economic recovery sprints or crawls, the "back to basics" focus of RF into regional banking is definitely a positive catalyst for the company's future. However, there is much more that RF needs to do to de-leverage its balance sheet and improve its credit quality. Failure to act successfully on either of those factors could spell trouble for the company.
Should RF not be able to grow internally, it may be tempted yet again to "grow by acquisition". The company's less than stellar track record of mergers and acquisitions (like the Union Planters merger and the AmSouth deals) makes that a questionable strategy.
- Bottom Line Conclusion
As a result of our fundamental, valuation and technical analysis, Regions Financial (RF) would rate as a MODERATE BUY. Based on data from 26 analysts/brokers following the stock, compiled from Thomson/First Call, the Mean Target Price for RF over the next 12 months would be $8.43, with a Target Range of between $7.00 and $9.50.
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- Market Correction Impact
MarketConsensus would, however, like to caution investors on what we see as a pending market correction. Market trend indicators are pointing to an overbought situation and a correction is a very real risk over the next 1-3 months. Investors should take this into consideration in their near term investing choices.
Good luck in your investing. Let us know if you have any questions, comments or feedback,
MarketConsensus Stock Analysis Team
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(By: Monty R. – MarketConsensus News Contributor)