Truist
Financial (TFC) stock is rising following reports that it will sell its insurance business. The stock remains a buy.
According to the reports, Truist will sell the remaining 80% stake of its insurance brokerage business for $10 billion to private-equity firm Stone Point Capital. That comes after Stone Point acquired a 20% stake in the business earlier this year.
Truist told Barron’s in an emailed statement that it doesn’t comment on rumors or speculation.
Truist stock has gained 6.4% to $29.27 at 12:22 p.m. Tuesday, while the
S&P 500
has risen 1.1%, and the
SPDR S&P Bank ETF
(KBE) has risen 2.2%.
Barron’s recommended Truist on Sept. 21, arguing that the company has room to cut costs, execute better, and lift profit margins. The company, which is the 2019 BB&T and SunTrust merger, has missed earnings per share estimates in the majority of the past 20 quarters, while this year’s macroeconomic concerns have hit all bank stocks. Since our recommendation, the stock has gained just over 3%.
The market welcomes news of the deal because it means Truist can continue to make its business simpler and more efficient. While it’s getting rid of its growing insurance business, it’s getting more than three times its expected sales of just over $3 billion, a hefty valuation. Even the relatively expensive Aflac (AFL) trades at less than three times forward sales.
Now, Truist can focus its newfound cash on just its lending and wealth management businesses, which account for the vast majority of 2024’s estimated sales of $23 billion.
It’s these types of moves that “show management is willing to take more forceful moves for a revamped ‘Truist 2.0,’” writes
Wells Fargo
analyst Mike Mayo.
The deal would also mean Truist has more cash, which improves the balance sheet. The bank had about $12 billion of second-quarter losses on securities, most of which are government bonds that saw their prices drop as their yields have risen. The deal allows Truist to offset most of those losses,, putting the company in a better financial position.
Improved financial health and proof that management is actively trying to stabilize earnings are lifting the multiple the market is willing to pay over expected EPS for the coming 12 months. The stock now trades at about 8.3 times forward EPS, up from below 6 times at the low this year. As long as the company executes on its profitability targets going forward, the multiple could catch up to other banks, with the
SPDR S&P Regional Banking exchange-traded fund
(KRE) trading at about 8.7 times earnings.
Even if further stock gains don’t materialize immediately, investors will almost certainly get paid to wait. Dividends per share next year should be about $2.10, for a yield of just over 7% yield.
For those who haven’t bought in yet, there’s still time—and reason to believe it will be money well invested.
Write to Jacob Sonenshine at [email protected]
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