Fifth Third's Revenue Growth Looks Promising: Time To Hold?

On Aug 16, 2016, we issued an updated research report on Fifth Third Bancorp (NASDAQ:FITB) . Notably, shares of this Cincinnati, OH-based banking giant have gained more than 25% over the past six months. We believe this growth story comes on the back of the company’s consistent focus on loan growth, strategic initiatives to boost revenues and maintenance of a strong capital position.

Amid a competitive business environment, Fifth Third’s steady improvement in loans highlights an efficient organic growth strategy. Total loans and leases recorded a CAGR of 3% over the last five years ending 2015, with the uptrend continuing in the first six months of 2016. The company expects loan growth of 2% this year. The upbeat outlook supports net interest income improvement which is projected to advance 2% in 2016.

Further, Fifth Third remains focused on augmenting its fee avenues, including capital markets capabilities, to mitigate the impact of low rates. Notably, non-interest income is anticipated to increase 5% this year. Also, the company remains on track with the execution of strategic investments, mainly in technology and compliance and risk management, which are projected to result in revenue growth, expense savings and operational excellence.

Additionally, with a strong capital position, the company is set to boost shareholder value as its 2016 Capital Plan has received approval by the Federal Reserve. The plan, which covers the period between Jul 1, 2016 and Jun 30, 2017, includes share buyback of up to $660 million and a quarterly dividend rate hike to 14 cents in fourth-quarter 2016.

Nevertheless, we remain cautious owing to several issues faced by Fifth Third. Elevated non-interest expenses despite efficiency initiatives remain a major concern. Initiatives such as branch digitization are likely to keep the company’s expense base under pressure in the short term. Notably, expenses increased during the first six months of 2016 on a year-over-year basis. Management expects expenses to be up 4% in 2016.

Among other headwinds, margin compression amid sluggish rise in interest rates and regulatory issues are likely to limit profitability.

Over the past 30 days, Zacks Consensus Estimate for 2016 increased 3.2% to $1.61 and declined slightly to $1.66 for 2017.

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