Truist Earnings: Goodwill Impairment and Lackluster 2024 Outlook

Key Morningstar Metrics for Truist Financial

• Fair Value Estimate: $50.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Truist Financial’s Earnings

Truist Financial’s TFC fourth-quarter and full-year 2023 results were marred by a $6.1 billion goodwill impairment charge, and the company’s 2024 outlook is lackluster. For the quarter, the firm reported a net loss of $5.2 billion, or $3.85 per share, on $5.76 billion of taxable-equivalent revenue. The fourth quarter saw other unusual items, including a $507 million FDIC special assessment to cover regional U.S. bank losses in early 2023. Excluding these unusual charges, adjusted EPS was $0.81. We don’t anticipate making a material change to our fair value estimate of $50 per share.

In prior quarters, we mentioned our disappointment with the realization of synergies for the rebranded Truist Financial from the merger of BB&T and SunTrust. Given the recent valuation we’ve seen for the banks, the changes in interest rates, and the potential changes that could occur in regulatory capital, the company was forced to impair goodwill related to the 2019 merger. While we continue to believe the merger created a financial services platform that improved the competitive positioning of the two companies, it seems the expected synergies from the deal have been tougher to realize and the environment has materially changed compared with initial expectations.

Management’s 2024 outlook has revenue down 1%-3%, with adjusted expenses flat or up 1%. Given the negative revenue trend for most banks in 2023, the likelihood of continued pressure on deposits in early 2024, and expectations for interest rate cuts this year, a slight decline in revenue is a reasonable result. Expense controls in the face of ongoing inflation are likely the result of the company’s $750 million expense savings program implemented in 2023.