OK, it’s a “hometown” bank for me, but you probably know the name too. I’ve been banking with Fifth Third Bank (FITB) forever.
My first saving account ever – you know, the old passbook savings accounts? - was opened at what is now a Fifth Third branch. To this day I still do all my personal banking with the Cincinnati based bank.
With that type of a relationship, my eyes are always on the stock, which has been through the wringer over the last two years, but that’s preparing to change.
Fifth Third shares are on pace to post gains near 80% for 2024. Now, that’s not close to the 150% gains that NVIDIA (NVDA) currently holds for the year, but even the slightest misstep from NVIDIA’s earnings report on August 28 will put Fifth Third stock in prime position to outperform NVIDIA for the year.
Here’s why.
Like all the other regional banks, Fifth Third took a hard hit in the wake of the 2023 regional bank meltdown. Shares lost 35% in the month of February alone. That drop put the stock 55% lower than its all-time highs posted in January 2022.
Despite their lower than industry commercial real estate portfolio and higher than industry deposits, the company had been swept into the firs with other regional banks as investors just wanted out of the entire group of regional bank stocks.
The company started to see a long-term turnaround in their fundamentals in late 2023, confirmed by the first positive earnings guidance from the company in March 2024.
Shares are now trading 94% higher than those lows with new all-time highs only 14% above the stock’s current price.
The regional banks are emerging out of a tough situation. Demand for commercial loans all but dried up in 2023 as small companies prepared for a recession. The fact that interest rates were at decades highs also squelched the mortgage and other types of loan business.
To add insult to injury, high rates forced Fifth Third to pay higher rates on deposits.
To put it simply, the company was getting squeezed from both sides.
But things have changed now.
Interest rates have started to move lower, attracting loan business back to the banks.
Just this week saw a 35% increase in refinancing applications as mortgage rates are cooling.
So far, businesses are slow to move on new loan activity as owners remain cautious about the next two quarters and the lingering possibility of a recession.
The biggest relief allowing the regional banks to rally has to do with the commercial real estate market. High interest rates were set to cause a collapse of the commercial real estate market as hundreds of billions of dollars in financing were approaching maturity.
With rates moving lower, the commercial real estate market will dodge a refinancing bullet, avoiding additional pressure for the lenders like Fifth Third.
Shares of Fifth Third moved above their 20-month moving average in early 2024. That move put the stock back in a long-term bull market trend.
The stock saw a slight pause after that until the company’s positive outlook was released on April 19, driving the stock into a new round of bullish buying as Wall Street analysts stared upgrading Fifth Third shares.
The company’s next earnings report – October 18 – should hold the key for the stock’s net move break above $42.50, as Fifth Third stock normally sees a 4-5% “buy the rumor” rally.
A break above $42.50 puts Fifth Third on pace to hit a target price of $50.00 before year-end, a near 30% gain from current prices.
