BB&T (BBT): Acquisitions could send revenues and earnings higher

By J.Royden Ward, Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory 1/15/13 Sign up for free Cabot Wealth Advisory e-newsletter

For this Cabot Wealth Advisory, I combined Warren Buffett’s and Benjamin Graham’s criteria for choosing stocks. I looked for stocks with:

1) Free cash flow more than $20 million–cash needs include dividends, operating expenses, capital improvements, and research.
2) Net profit margin more than 15%–a good indicator of growth sustainability.
3) Return on equity more than 15%–a barometer of future appreciation.
4) Discounted cash flow value higher than current price–Standard & Poor’s is a good source to find discounted cash flow estimates.
5) Market capitalization more than $1 billion–small companies not allowed.
6) Standard & Poor’s rating of B+ or better–indicates financial stability and steady growth of earnings and dividends.
7) Positive earnings growth during the past five years with no deficits–very important.
8) Dividends currently paid–always important and helps your return, too.

I screened my Benjamin Graham Common Stock Database and found this high-quality company that fit the above criteria. BB&T is a leader in its sector, and has excellent future prospects.

BB&T Corp. (BBT), founded in 1872 and based in Winston-Salem, North Carolina, BB&T provides checking and savings, loans and other financial products and services in the Southeastern U.S. with a high concentration of customers in Virginia, North Carolina and Florida. BB&T has 1,800 branches and $178 billion in assets.

BB&T has taken advantage of attractive buying opportunities during the past four years. The company has acquired Haven Trust Bank, BankAtlantic and parts of Colonial Bank. Earlier, in 1995 and 1997, BB&T merged with Southern National Corp. and purchased United Carolina Bancshares.

Management expects to easily comply with new U.S. government rules and regulations, including Dodd-Frank and the Volcker Rule. Consumer protection regulations will increase some expenses, but not significantly.

Loans increased 8% and EPS soared 45% in 2012. BB&T is taking market share from other banks and is improving the quality of its investment holdings. Underperforming assets fell to the bank’s lowest level since 2008, and BB&T has stopped holding low-yielding mortgages.

I forecast loan growth of 5% and earnings per share growth of 10% in 2013. The acquisition of BankAtlantic, based in Florida, could send revenues and earnings higher than expected. With a current P/E ratio of 11.4 and a dividend yield of 2.8%, BBT shares are undervalued. BBT is medium risk. BBT shares sell at a deep discount to Standard & Poor’s discounted cash flow value of 39.30. I expect BBT to increase to my Minimum Sell Price target of 38.75 within one year.

I will continue to follow BB&T and other blue-chip, high-quality companies in my Cabot Benjamin Graham Value Letter.

Editor’s Note: You can find additional stocks selling at bargain prices in the Cabot Benjamin Graham Value Letter. In every issue, you’ll find my legendary Maximum Buy and Minimum Sell Prices for over 250 stocks. Click here to get started today!

Company Details

BB&T Corporation
200 West Second Street
Winston-Salem, North Carolina 27101
Index Membership: N/A
Sector: Financial
Industry: Regional – Mid-Atlantic Banks
Full Time Employees: 31,800