BB&T Scores Better than Most

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BB&T Corporation (NYSE: BBT) has lost more than 15% of its value since September, following earnings that disappointed Wall Street. The regional bank has been among the best performers in the industry, both in stock and in fundamentals. Last week a study showed BB&T to be among the best in the mortgage industry, meaning it could be presenting great value, more so than other more popular names.

In BB&T’s last quarter, it posted revenue growth of 18.60% and earnings growth of 35% year-over-year.  Yet the stock has since fallen, as it did not quite meet expectations. The stock trades with a forward P/E ratio of just 9.92, which is actually less than some of the more popular investment choices, such as Bank of America (NYSE: BAC).

The overall efficiency of BB&T is something to be celebrated in a struggling banking industry. The company has managed to achieve a profit margin in excess of 20% and a debt-to-assets ratio under 15%. Bank of America, on the other hand, has a profit margin of only 6.75% and a debt-to-assets ratio of nearly 30%. In addition, BB&T is a company that returns capital to its shareholders in the form of a generous dividend, with a current yield of 2.80%.

The reason that I am comparing BofA and BB&T is because of the apparent value being presented in shares of BB&T, yet investors have preferred to invest in BofA. Both stocks have performed well during the last year, and appear close in terms of fundamentals/stock valuation. However, BB&T’s future in the recovering housing market looks to be much more secure than that of BofA.

In a J.D. Power mortgage survey of banks, BB&T scored “better than most” at number two, while Bank of America finished in last place. The survey is based on responses from more than 3,500 customers who originated a new mortgage between July 31 and Aug. 27. Apparently, those banks that score high typically do a better job at meeting customer expectations, keeping the borrowers aware of the loan processes, and establishing a trustworthy relationship with the clients.

The basis for which a high score is earned are the reasons why BB&T has performed well over the last five years and BofA has faced near bankruptcy on several occasions. BB&T is a customer-driven business, and operates in strong regional areas of the country; meanwhile, BofA has historically faced issues with trust and bad loans, which are evident by the countless lawsuits and operational struggles.

There is one more noticeable fact regarding this survey, and that is the strength of regional banks compared to the money center banks. In 2012 money center bank stocks such as BofA and Citigroup have performed well, as people believe they are best positioned to capitalize on a rebuilding housing market. However, it's companies such as BB&T and SunTrust (NYSE: STI) that have performed even better. 

In terms of performance, SunTrust hasn't performed the best since the recession, but has done better than stocks such as BofA and Citigroup. The stock has been a consistent performer over the last three years, and much like BB&T has seen significant fundamental improvements as of late. In my opinion, the distinction between the large money center banks and regional banks speaks to what hurt the large banks during the recession. These large banks are simply trying to write as many mortgages as possible, without caring about the customer. Meanwhile, banks such as SunTrust and BB&T are more customer driven, and are growing in strong regions, which means that regional banks could continue to lead the industry in performance. 

Looking ahead, with companies such as BB&T and BofA seeing near equal trading metrics, I believe the clear winner is BB&T (among other regional banks). BB&T is a company that is growing, and is shareholder and consumer friendly. BofA historically is not, and these factors will be important in the years ahead as the housing industry recovers.


BrianNichols has a position in BB&T. The Motley Fool owns shares of Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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