Stock Presentation
Financial Sector
Mike Ranttila
Recap of Sector Recommendation
S&P Weight
16.07%
Discrectionary
Staples
Energy
Health Care
Industrials
IT
Materials
Telecom
Utilities
Cash
Financials
Recap of Sector Recommendation
Buy 300bps
Review of stocks we own
Sim Weight
Discrectionary
4.2%
Staples
Energy
Health Care
Industrials
IT
3.6%
14.6%
Materials
Telecom
Utilities
3.1%
Cash
JP Morgan Chase
Citigroup
1.9%
Wells Fargo
Capital One
1.7%
Keycorp
JP Morgan Chase
Citigroup
Wells Fargo
Capital One
Keycorp
Business Analysis
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The financial sector has been lagging the broader index.
NIM compression
SIM has been correctly underweight during this time.
Organic commercial loan growth appears to be picking up steam.
Housing continues to heal though many mortgages still under water.
Mortgage lending could remain suppressed for years due to low/rising rate environment.
Regulatory burdens are extremely costly.
Banks have positioned their balance sheets to benefit from rising rate environment.
The yield curve should steepen (Fed and inflation), which will bolster banks.
Allowances for loan losses should continue to dwindle, bolstering the bottom line.
Large, international banks must find new business segments for growth; small regional banks are
able to grow by doing what they do best
Valuation- Key DCF Analysis
Net Income
% growth
Terminal Discount Rate
Terminal FCF Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Shares Outstanding
Current Price
Implied equity value/share
Upside/(downside) to DCF
2014E
1,049
10.0%
3.0%
7,602
7,674
15,276
2015E
1,085
2016E
1,124
2017E
1,144
2018E
1,167
2019E
1,190
2020E
1,220
2021E
1,250
20122E
1,275
2023E
1,313
2024E
1,353
3.5%
3.6%
1.8%
2.0%
2.0%
2.5%
2.5%
2.0%
3.0%
3.0%
50%
50%
100%
Terminal Value
Free Cash Yield
12.3
14.6
912,571
14.17
16.74
18.1%
11.9
14.1
11.5
13.6
Terminal P/E
19,905
6.80%
14.7
Valuation- A closer look at the assumptions
Valuation- SunTrust DCF Analysis
Net Income
% growth
Terminal Discount Rate
Terminal FCF Growth
NPV of Cash Flows
NPV of terminal value
Projected Equity Value
Free Cash Flow Yield
Current P/E
Projected P/E
Shares Outstanding
Current Price
Implied equity value/share
Upside/(downside) to DCF
2014E
1,475
10.0%
3.0%
12,305
13,189
25,494
2015E
1,592
2016E
1,797
2017E
1,890
2018E
1,947
2019E
2,005
2020E
2,066
2021E
2,128
20122E
2,191
2023E
2,257
2024E
2,325
7.9%
12.9%
5.2%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
3.0%
48%
52%
100%
Terminal Value
Free Cash Yield
15.2
17.3
560,997
39.85
45.44
14.0%
14.0
16.0
12.4
14.2
Terminal P/E
34,208
6.80%
14.7
Valuation- A closer look at the assumptions
Financial Analysis- Buy/sell/hold
Tier 1 Capital (Basel III)
efficiency ratios
ROA
ROE
IRR +200
net charge off
ALLL/Loans
Trailing P/E
Div yield
Current Price
Mean Analyst Target
Forward P/E
Expected EPS (2015)
Calculated Price
Exp $ Diff
Exp % Diff
WFC
10.09
57.90
1.55
13.58
Citi
10.60
63.00
0.72
6.73
JPM
10.70
73.00
0.69
7.81
0.35
1.76
12.81
2.60
51.49
53.44
12.00
4.31
55.21
3.72
COF
12.23
55.91
1.48
10.42
4.90
2.04
2.19
11.75
1.40
83.96
86.04
11.24
7.44
87.42
3.46
1.57
2.95
10.81
0.10
47.00
58.25
8.80
5.37
58.05
11.05
0.81
2.25
13.83
2.80
55.80
64.64
9.46
5.96
82.43
26.63
Key
10.70
67.50
1.01
8.71
3.00
0.32
1.56
13.81
1.80
14.17
14.98
12.43
1.14
15.74
1.57
7.2%
4.1%
23.5%
47.7%
11.1%
Source: Company 10K; www.businessweek.com
STI
9.70
64.90
0.80
6.58
1.80
0.35
1.58
15.88
2.00
39.85
42.87
12.19
3.29
52.25
12.40
31.1%
Recommendations
Hold
JPMorgan Chase
Sell
Capital One- Entire position (190bps)
SunTrustKeyCorpWells FargoCitigroup-
Buy
150bps
150bps
100bps
100bps