SunTrust Banks Inc.'s shares lagged the market and other bank stocks Wednesday as investors fretted over the company's first-quarter earnings.
Investors are concerned that SunTrust's $9.5 billion acquisition of Crestar at the end of the year could hurt the results, analysts said.
The Atlanta banking company's shares fell 43.75 cents, to $62.25, or 0.70%, on a day when banks stocks were down only slightly. The Standard & Poor's bank index fell 0.71%.
Part of the decline could be attributed to an earnings warning Tuesday by Coca-Cola Co., in which Sun Trust is a major shareholder.
But SunTrust shares have languished for some time now.
When SunTrust first announced its intentions to buy Crestar July 20, many investors and analysts were concerned that the move would dilute earnings. That sentiment deepened this year as analysts cut back on earnings estimates.
During a bank analysts' conference in Florida in February, SunTrust chairman L. Phillip Humann indicated that the company was comfortable with a 1999 earnings per share forecast of $3.90-far lower than the analyst consensus last year of $4.04.
Investors had been expecting more expense savings in the first quarter, said bank analyst Michael L. Granger of Fox-Pitt, Kelton.
But expenses have been higher than expected, he said, because the deal closing was delayed when the Securities and Exchange Commission took issue with the bank's conservative policies.
Mr. Granger said SunTrust is likely to meet the analysts' earnings consensus of 90 or 91 cents this quarter, but that it would have to do significantly better for the rest of the year to meet the $3.90 per share target.
SunTrust officials said the worries are overblown. "Several banks in the midst of mergers have made disappointing earnings announcements, and one could argue that the investment community is skeptical about what SunTrust would report," said Eugene S. Putnam, senior vice president of investor relations.
"We believe that our merger is different and we look forward to people analyzing our first quarter results and seeing the difference."
SunTrust plans to report its first-quarter earnings April 13.
Now that the stock has fallen, even cautious analysts are beginning to view SunTrust as a buying opportunity.
"The valuation has come down to a level where investors should would be interested in the stock," said Mr. Granger, who has a "hold" rating on SunTrust.
Investors have "completely overreacted" to the near-term earnings dilution from the Crestar acquisition, said Edward Najarian, a bank analyst at First Union Capital Markets.
"Expenses will be higher than expected," but so will revenue growth, said the analyst who has an "outperform" on the company.
Mr. Najarian pointed out that SunTrust is trading at a "rare" discount to its peers.
The price-to-earnings multiple of the core bank-the part which is not invested in Coca-Cola-"is very inexpensive relative to other regional bank stocks," said Mr. Najarian.
By that measure, SunTrust is trading at 14.6 times 1999 earnings per share, Mr. Najarian said; large regional stocks are trading at 15.5 times 1999 earnings.
"To be able to buy SunTrust at such a discount to the group is an opportunity which has not been available for many years."