BB&T's Acquisitions Fuel Growth, Soaring Costs A Concern

On Jun 17, 2016, we issued an updated research report on BB&T Corporation (NYSE:BBT) . Despite margin compression, elevated costs and regulatory issues, the company’s robust revenue growth, solid capital position and enhanced capital deployment activities continue to support its expansionary path.

BB&T is expected to achieve its targeted loan growth in the upcoming quarters through the continued rise in loans and non-interest bearing deposits. Also, the company’s overall inorganic strategy remains quite impressive. Its acquisition of National Penn Bancshares Inc. in Apr 2016 is expected to be accretive to its earnings in the first full year (excluding one-time charges).

Further, BB&T has been persistently focusing on boosting its non-interest income sources. The decline in FDIC loss share account and improvement in insurance as well as investment banking income will aid in accelerating the non-interest income growth going forward.

Additionally, BB&T boosts an impressive credit quality. Though it had weakened in the first quarter, management expects the asset quality to remain stable over the next few quarters.

However, escalating costs due to inorganic growth strategy, exposure to risky loans and impact of heightened regulatory issues on financials, remain matters of concern for BB&T. Also, in the near term, stricter capital requirements are expected to lower the company’s flexibility in respect to its business investments.

Further, like most banks, BB&T is facing margin compression due to low rate environment. Net interest margin is expected to remain under pressure in 2016 unless there is a significant improvement in the interest rate environment.

Thus, driven by these concerns analysts are bearish on the stock. Over the last 60 days, the Zacks Consensus Estimate declined 3.15% and 3.07% for 2016 and 2017, respectively.

Currently, BB&T Corporation carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some of the better-ranked Midwest banks include Wintrust Financial Corporation (NASDAQ:WTFC) , Heartland Financial USA, Inc. (NASDAQ:HTLF) and FirstMerit Corporation (NASDAQ:FMER) , holding a Zacks Rank #2 (Buy).