SunTrust Banks, Inc. (NYSE:STI) has added itself to the list of companies that are posting better-than-expected quarterly results this reporting season. The financial institution reported earnings per share of $0.89 over revenues of $2.08 billion for the second quarter of 2015 this morning. Wall Street had estimated earnings per share of $0.81 and revenues of $2.02 billion. The bank recorded growth of $0.17 or 24% in earnings per share compared to the prior year, while its revenue dipped by 6% on a year-over-year basis. Nonetheless, shares of SunTrust Banks, Inc. (NYSE:STI) are trading down by 2.01% in early afternoon trading.
William H. Rogers, Jr., chairman and CEO of SunTrust Banks, Inc, said, “Our performance this quarter demonstrates solid execution of our key strategies – deepening client relationships, optimizing the balance sheet, and improving efficiency. This was evidenced by higher revenue, continued deposit growth, and improved returns. In addition, our asset quality performance continues to be strong.” In spite of growth in its earnings per share, SunTrust Banks, Inc. (NYSE:STI) witnessed a drop of 8% in its net interest margin year-over-year, which came in at 2.86% during the quarter, though it was an increase from 2.83% quarter-over-quarter. The metric is a key measurement to judge the profitability of banks. Another is the bank’s efficiency ratio, which was lowered to 63.4% from 63.6% year-over-year. SunTrust executives are aiming to bring it below 63% this year.
The hedge funds tracked by Insider Monkey had a positive outlook of the banking firm during the first quarter, as 34 hedge fund managers had investments of $348.01 million in the company compared to aggregate holdings of $299.58 million from 29 hedge fund managers to start the quarter. It is important to consider that the hedge fund managers increased their investments in the company despite a 1.93% drop in its share prices during the first quarter. Shares are up by 8.2% since then.
At Insider Monkey, we track hedge funds’ moves in order to identify actionable patterns and profit from them. Our research has shown that hedge funds’ large-cap stock picks historically delivered a monthly alpha of six basis points, though these stocks underperformed the S&P 500 Total Return Index by an average of seven basis points per month between 1999 and 2012. On the other hand, the 15 most popular small-cap stocks among hedge funds outperformed the S&P 500 Index by an average of 95 basis points per month (read the details here). Since the official launch of our small-cap strategy in August 2012, it has performed just as predicted, returning over 139% and beating the market by more than 80 percentage points. We believe the data is clear: investors will be better off by focusing on small-cap stocks utilizing hedge fund expertise rather than large-cap stocks.
We also track insider activity, of which there were 13 insider sales at SunTrust in 2015. Raymond D. Fortin, Corporate Executive Vice President and General Counsel of Suntrust Banks Inc, sold 156,469 shares of the bank in 2015, including the recent sale of 39,240 shares on May 19.
Considering the positive hedge fund sentiment surrounding the company, we’re going to check out the key action regarding SunTrust Banks, Inc. (NYSE:STI).
What have hedge funds been doing with SunTrust Banks, Inc. (NYSE:STI)?
Heading into the second quarter, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, an increase of five from the previous quarter. With hedgies’ positions undergoing their usual ebb and flow, there exists a select group of key hedge fund managers who were upping their stakes substantially.
Of the funds tracked by Insider Monkey, Balyasny Asset Management, managed by Dmitry Balyasny, holds the most valuable position in SunTrust Banks, Inc. (NYSE:STI). Balyasny Asset Management has a $40.2 million position in the stock with 979,305 shares, comprising 0.3% of its 13F portfolio. The second-largest stake is held by Winton Capital Management, managed by David Harding, which holds a $36.3 million position of 883,246 shares; the fund has 0.3% of its 13F portfolio invested in the stock as well. Some other members of the smart money that are bullish comprise Neil Chriss’ Hutchin Hill Capital, Mark Lee’s Forest Hill Capital, and Ken Griffin‘s Citadel Investment Group.
Consequently, specific money managers have jumped into SunTrust Banks, Inc. (NYSE:STI) headfirst. Stevens Capital Management, managed by Matthew Tewksbury, established the most valuable position in SunTrust Banks, Inc. (NYSE:STI) during the first quarter, holding a $13.5 million position in the company by the end of it. Kenneth Tropin’s Graham Capital Management also initiated a $9.4 million position during the quarter. The other funds with new positions in the stock are Gregg Moskowitz’s Interval Partners, George Hall’s Clinton Group, and Paul Tudor Jones’ Tudor Investment Corp.
Considering positive hedge fund sentiment and better-than-expected quarterly results, we recommend a buy rating for the shares of the company, especially in light of their dip today.