Truist Financial Corp. on Dec. 23 announced a share buyback plan of up to $2 billion of its common stock and confirmed that it will continue to pay a dividend of $0.45 per share starting from the first quarter of 2021. Shares gained 2.7% at the close on Wednesday.
Truist Financial’s (TFC) announcement comes after the Federal Reserve released a stress test report allowing the financial services company to take certain capital actions during Q1 of fiscal 2021, subject to certain restrictions. The Fed also allowed Truist to redeem Tier 1 and Tier 2 capital instruments.
Tier 1 capital is the primary funding source of the bank consisting of shareholders’ equity and retained earnings. Tier 2 capital includes revaluation reserves, hybrid capital instruments and subordinated term debt, general loan-loss reserves, and undisclosed reserves.
Truist plans to maintain a common equity Tier 1 ratio of 10% after factoring in non-bank acquisitions and stock repurchases, the company said. The Tier 1 capital ratio is obtained by taking a bank’s core capital relative to its risk-weighted assets (RWAs). The RWAs refer to the bank’s assets that are assigned with a weight based on their level of credit risk.
“The latest stress test results demonstrate Truist’s sound capital and risk management practices. As it relates to capital deployment, our highest priority is to continue to meet the needs of our clients by reinvesting in our businesses,” said Truist CEO Kelly King. “After that, our capital priorities are to maintain a strong and stable dividend and pursue strategic opportunities, followed by stock repurchases.”
On Dec. 11, Credit Suisse analyst Susan Roth Katzke reiterated a Hold rating on TFC stock and raised the price target from $42 to $52 (10% upside potential).
With the prospect of a Covid-19 vaccine on the horizon and a shift in risks, “more upside and less downside” around base case estimates, Roth Katzke increased price targets for US-listed large cap bank sector stocks. (See TFC stock analysis on TipRanks)
From the rest of the Street, the stock scores a cautiously optimistic analyst consensus of a Moderate Buy based on 7 Buys and 4 Holds. The average analyst price target of $49.68 implies upside potential of 5% to current levels.