Truist Financial Earnings: Revenue Expectations Stabilizing, Expense Cuts Will Be Big Focus

Key Morningstar Metrics for Truist Financial

• Fair Value Estimate: $50.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Truist Financial’s Earnings

Truist Financial TFC reported earnings per share of $0.80, which was a bit below our forecast of $0.89. Still, once certain one-time items related to service fee refunds are factored in, the bank will have met our forecasts for the quarter. After disappointing in the previous quarter, current quarter revenue expectations stabilized and the expense outlook remained roughly on track, but adding in additional exclusions to the adjusted expense guide implies to us the bank is more likely to come in on the high end of the guidance range.

The bank reaffirmed its expense growth target for next year of 0%-1% as it begins $750 million in gross expense cuts. Given the bank’s efficiency ratio above 60% and the disappointment in the lack of efficiency gains following the merger of BB&T and Suntrust, we think improving that efficiency ratio and keeping expense growth below peers will be a focus for investors.

Net interest income, or NII, has likely not quite bottomed yet, and we would not be surprised if we reach the bottom in the first or second quarter of 2024. While deposit costs came in a bit below our estimates, we still have not quite reached a funding equilibrium. Deposits were down 1% sequentially, and the shift into interest-bearing balances continued.

Even so, the current trajectory for NII is meeting our expectations. We expect to adjust our 2023 NII forecast up slightly and our fee forecast down slightly, and we remain comfortable with the trajectory of our longer-term forecasts, given these results. We do not anticipate a material change to our current fair value estimate of $50 and continue to view shares as undervalued.

Among the regional banks we cover, Truist has created one of the largest relative unrealized loss amounts in its securities portfolio, and to the extent the market continues to penalize the bank for this, it could remain an overhang for a while longer, but we see a credible path toward meeting regulatory requirements over time.