Regions Financial: One of the Best Banking Bets

Regions Financial Corporation (NYSE:RF) has been steadily outperforming its major peers, up 65% year to date, whereas BB&T, Huntington, Fifth Third and PNC are all up less than 20%. When comparing Regions to larger banks like JPMorgan and Wells Fargo, the latter two have returned less than half that of RF shares. Billionaire Jim Simons is one of Regions’ biggest fans after he increased his stake by almost 250% last quarter (check out Jim Simons’ biggest bets).

With robust initiatives to de-risk its portfolio through asset liquidation and a reduction in real estate, Regions has managed to lower its debt-to-capital ratio to an industry-low 35%. Regions has also seen positive votes of confidence from all of the major rating agencies. S&P upped its outlook to stable in August 2011, Fitch Ratings moved Regions to stable in November of that same year, and Moody’s gave the bank this designation in February 2012.

On the revenue side, net top line is expected to be down 17% by the end of this year as brokerage and investment banking sales decline, but this negative growth is expected to slow in 2013 to -3.5%. Regions also collected $1.2 billion on the sale of its brokerage unit, Morgan Keegan, to Raymond James Financial. This boost in cash position could help improve Regions’ dividend yield of 0.6%.

Regions trades well below major peer Fifth Third at a P/B of 0.7x, which is also below the other major banks. We believe that Regions is in part shunned due to its 16x trailing P/E; this is unattractive compared to Fifth Third (10x) and Wells Fargo (11x). Looking at its forward P/E of only 9x, though, we see solid value where investors might be overlooking Regions’ growth potential.

Is it a better investment, though, than its competitors?