Truist Financial Stock: A Short-Term Bullish Setup (NYSE: TFC)

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Fed stress test results last week were generally positive and in line with expectations. Annual measurement of the ability of major financial firms to weather various extreme market scenarios sent no shockwaves through the markets. Instead, its passage has allowed many banks to announce new shareholder accretive business plans. Larger dividends and share buybacks were announced within hours of last Friday’s regulatory exercise.

Bank dividends rise after stress test results

Bank dividends rise after stress test results

Bloomberg Television

Still, JP Morgan Chase and Citigroup face tougher capital requirements — enough that these two big monetary central banks had to leave their dividends unchanged. A regional bank, Truist Financial (NYSE: TFC), increased its dividend by 8.3% to 52 cents from the third quarter. CEO Bill Rogers said, “Truist’s strong stress test results, combined with last year’s strong financial results and successful integration, mean we are well positioned to execute on our strategy,” according to CNBC.

Serving much of the Southeastern United States, the bank has positive demographic exposure in the “Smile” states and the Sunbelt. According to Bank of America Global Research, Truist is a Charlotte, North Carolina-based financial services company with over $470 billion in assets. With a history dating back to the Civil War, and now the 6th largest bank in the United States by deposits, TFC offers a wide variety of different financial products ranging from consumer and commercial banking to securities brokerage and financial services. asset management.

Truist is a popular regional banking trading game – considered more sensitive to changes in interest rates than the major national banks. The SPDR S&P Regional Banking ETF (KRE) is a broad and popular way to play that narrative, and TFC is part of that portfolio.

Regional Bank ETFs

Regional Bank ETFs

SSGA Fund

Turning to TFC’s fundamentals, BofA analysts expect strong earnings growth in 2023 given its historically strong credit cycle performance and its flexibility to effectively manage its balance sheet following the completion of its BBT/SunTrust merger in 2019. Truist also acquired Kensington Vanguard which BofA says will generate synergies. Additionally, further rate hikes from the Fed should help this custodial institution. Its next earnings report, according to Wall Street Horizon, is due on the morning of Tuesday, July 19 with a conference call follow.

BofA sees EPS surpassing $6 per share over the next two-plus years after a decline in 2022. With an expected P/E below 10x at current prices and rising yield, the fundamental backdrop looks good. But what do the graphs say?

Truist earnings, valuation, dividend forecasts

Truist earnings, valuation, dividend forecasts

BofA Global Search

The technical grip

Over the past five years, TFC’s shares have remained unchanged. It’s a messy chart given the strong returns in the broader market at this time. This underperformer is below its pre-pandemic peak, but has found some buyers recently. Let’s zoom in on the one-year chart.

TFC Five-Year Chart: Below Pre-Pandemic High, Support at $44

TFC Five-Year Chart: Below Pre-Pandemic High, Support at $44

Stockcharts.com

The stock made a bullish double bottom formation just below $45 in May and June. This is a key place traders should watch out for. What’s encouraging is that this happened on improving RSI momentum – that’s a bullish divergence in technical analysis parlance. A move above the $51 resistance would help confirm this low.

Still, the stock broke its trend rate during an extremely bearish streak in late March and early April. So there is a significant overhead supply between $50 and $60. The technical picture is mixed.

TFC 1-Year Chart: Bullish Double Bottom with Positive Divergence

TFC 1-Year Chart: Bullish Double Bottom with Positive Divergence

Stockcharts.com

The essential

The fundamental outlook for TFC is favorable with positive demographic trends in the Mid-Atlantic and Southeast, while higher interest rates should help this custodial financial company. Charts are mixed – a short-term bullish double bottom on positive divergence is good, but overall supply/resistance could be problematic. Swing traders should consider going long here with a stop below the June low while long-term fundamental investors can hold the stock for its earnings and dividend growth and good valuation.

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