Regional banks are often seen as an indicator of the broader financial sector and stock market. A popular ETF to play in this industry is the SPDR S&P Regional Banking ETF (KRE). The the industry had been struggling mightily on an absolute basis until mid-July. In recent weeks, however, smaller regional banks have taken off.
After a much better than expected US jobs report last Friday and (finally) a colder than expected July CPI report on Wednesday morning, investors are flocking to the KRE. After outperforming the Select Financials Sector ETF (XLF) since the start of the second quarter, bulls are hoping this group of smaller banking firms can maintain momentum through the end of the year.
Regional Banks Are Ahead Of The Financial Sector
One company shines in the niche with a solid positive total return of 4% year-to-date. According to Bank of America Global Research, the regions (NYSE: RF) is a Southeast-based regional bank with over $160 billion in assets. Headquartered in Birmingham, Alabama, the company has more than 1,800 branches and leading market share in Alabama, Tennessee and Mississippi. The Company’s loan portfolio primarily focuses on C&I, residential mortgages, home equity and commercial mortgages.
The $20 billion market-cap financial sector banking firm pays a handsome 3.6% dividend yield and trades at just 10.1 times last year’s earnings, according to The Wall Street Journal.
BofA analysts see a decline in earnings this year, but then a solid growth rate in 2023 before earnings per share stabilize in 2024. As such, RF’s P/E ratio is considered to remain good market if the stock does not continue to rise from here. Dividend investors will appreciate BofA’s return forecast on RF – reaching almost 5% by the end of 2024.
RF: Earnings, valuation, dividend forecasts
Regions beat its second-quarter EPS guidance in July at the start of the reporting season. Its next earnings date is confirmed by Wall Street Horizon for Friday, October 21, BMO. Until then, the company’s management team is expected to speak at the Barclays Global Financial Services Conference Conference September 12-14. Investors should beware of potential volatility around this date.
Calendar of corporate events in the regions: September conference on the bridge
The technical grip
RF shares surged on Wednesday as the market, and the financials sector in particular, rallied on the back of the better-than-expected CPI report. The regions are looking to post five consecutive weekly advances as the stock shows relative strength.
RF has held its pre-pandemic highs well in a few tests since the middle of last year and recently broke above a downtrend resistance line from its early 2022 peak above $25. I think the stock is poised to revisit those highs in the coming weeks based on that momentum. If things don’t work out, a sell stop should be applied below $17.50.
RF: Breakout Above Resistance After Holding End-2019 High
Regions Financial looks good to me as the stock appears to be trading at its highest price since March. It has a cheap valuation with earnings growth expected over the next year. A strong dividend yield may rise slightly if BofA is right. Meanwhile, the impressive technical setup and relative strength against its industry and the broad market seem to make RF a leader in the second half.