Analyst Note| Eric Compton, CFA |
We are increasing our fair value estimate for narrow-moat Truist to $61 from $55. As we mentioned in our original earnings note, we were leaning toward increasing the fair value after fourth quarter results, but after more fully incorporating our updated estimates, the increase is a bit larger than we originally expected. Roughly $1 of the increase is due to the time value of money, while the bulk of the rest of the increase is due to a combination of a more sanguine credit outlook leading to lower expected provisioning, and an improved net interest income outlook in the latter years of our forecast, largely due to increased asset sensitivity and adjustments to our estimate of the effects of purchase accounting accretion. With more fiscal stimulus likely on the way and credit metrics looking solid, along with the current reserves on Truist’s balance sheet, we think it is increasingly likely that provisioning could be very well controlled for the next year or two. We also like the progress the bank is making on expenses, and expect expenses to start materially declining in 2021, and to continue to decline through 2023.