Regional Banks Stocks Rise Despite EPS Projections
Even though 2014 earnings estimates for many banks have risen very little or even dropped this year, share prices have steadily climbed, with the KBW Bank Index
What has happened is the market's valuation of bank stocks relative to book value and earnings estimates has risen as investors have grown much more comfortable with the notion of a much stronger banking sector.
For example, shares of SunTrust
Based on Friday's closing price of $32.99, SunTrust's shares now trade for 1.3 times their reported June 30 tangible book value of $26.08, and for 11.2 times the consensus 2014 EPS estimate of $2.95.
So SunTrust's shares rose 16% from Jan. 3 through Friday, with the forward price-to-earnings ratio rising significantly, even though analysts' opinion about the company's earnings prospects for 2014 soured slightly.
Bank of America
Bank of America's closing price at the end of 2012 was $11.58. At that time, the shares traded at much lower multiples of 0.9 times their Sept. 3, 2012 reported tangible book value of $13.48 and 9.3 times the then-consensus 2014 EPS estimate of $1.25. Rising home prices and lower expenses related to problem loans and repossessed real estate, as well as other efficiency gain through CEO Brian Moynihan's "Project BAC," have greatly boosted investors' confidence in the stock.
Please see TheStreet's Big 4 Bank Earnings Preview for more on the difficult third-quarter earnings comparisons ahead for Bank of America, JPMorgan Chase