Are Fifth Third Bancorp Shares Still a Bargain?

With shares of Fifth Third Bancorp (NASDAQ:FITB) trading at around $15.55, is FITB an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

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Fifth Third Bancorp isn’t one of the most talked about banks due to its smaller size compared to the big five, but it has performed well over the past few years. The company just reported FY EPS of $1.66, which is a 41 percent increase over 2011. Q4 EPS came in at $0.43, beating the estimate of $041. Net income increased to $399 million from $314 million. Q4 profit rose 27 percent, which was mostly due to its stake in Vantiv Inc. (NYSE:VNTV). Part of last quarter’s impressive performance can be attributed to mortgage banking revenue up 29 percent, and corporate banking revenue up 13 percent. There was $87 million in charges related to the termination of Federal Home Loan Bank debt.

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Net income margin decreased to 3.49 percent from 3.56 percent. Fifth Third expects net margin to decrease even more next year to between 3.35 percent and 3.41 percent. For 2013, Fifth Third also expect net charge-offs to fall around $200 million. Furthermore, Fifth Third will set aside less money to cover secured loans in Q1.

So far, early action is looking good based on these results. We’ll see if it holds. For now, let’s take a look at some important number for Fifth Third.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Fifth Third is a little on the high side, but it’s normal for the industry. The balance sheet could use some help, but cash flow is strong.

Debt-To-Equity

Cash

Long-Term Debt

FITB

1.04

$3.98 Billion

$8.13 Billion

HBAN

0.48

$955.21 Million

$1.50 Billion

USB

1.36

$9.38 Billion

$26.26 Billion

 

T = Technicals on the Stock Chart Are Strong

Fifth Third has performed well over the past three years. It has also performed right in-line with its competitors, Huntington Bancshares Incorporated (NASDAQ:HBAN) and U.S. Bancorp (NYSE:USB). All companies pay similar dividends. Currently, Fifth Third yields 2.60 percent.

1 Month

Year-To-Date

1 Year

3 Year

FITB

8.59%

1.91%

13.21%

43.52%

HBAN

9.09%

5.16%

15.44%

65.21%

USB

6.18%

3.76%

16.96%

41.79%

 

At $15.55, Fifth Third is currently trading above all its averages.  

50-Day SMA

14.76

100-Day SMA

15.00

200-Day SMA

14.36

 

E = Earnings Have Been Improving

Earnings have improving since 2009. However, we haven’t seen consistent revenue growth on an annual basis.

2007

2008

2009

2010

2011

Revenue ($)in billions

8.49

8.55

9.45

7.22

6.67

Diluted EPS ($)

1.98

-3.91

0.67

0.63

1.18

 

We already know what happened this quarter. Now let’s take a look at previous quarters.

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

1.72

1.61

1.81

1.71

1.69

Diluted EPS ($)

0.40

0.33

0.45

0.40

0.38

 

T = Trends Support the Industry

Try to find a bank stock that hasn’t seen at least double-digit gains over the past three years. You will be hard-pressed to do so. As long as cheap money is available, banks are going to make good money. While it’s not a natural comeback, this industry has still seen one of the greatest comebacks of all time. Based on current policies, there is still room for the industry to run. If we revisit 2007 levels in the broader market, then it might be time to pack up shop and leave with a smile and a profit.

Conclusion

Fifth Third has a profit margin of 24.10 percent, an ROE of 11.13 percent, a good reputation with analysts, strong cash flow, and a Forward P/E of 9.78. Nothing about Fifth Third blows you away, but everything is solid.

Fifth Third is an OUTPERFORM.

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