Two southeastern banking companies have received upgrades, in part for their success in integrating acquisitions made last year.
John E. McDonald, an analyst at Banc of America Securities LLC, upgraded Wachovia Corp.'s stock Monday to "buy," from "neutral." That same day Richard X. Bove of Punk, Ziegel & Co. raised his rating on Regions Financial Corp. of Birmingham, Ala., to "buy," from "market perform."
Since buying SouthTrust Corp. of Birmingham in November, Wachovia has been quiet on the acquisition front, but it has organic growth opportunities, Mr. McDonald wrote in a research note.
It can increase earnings by increasing productivity at SouthTrust branches and at newly built branches in New York and Texas, he wrote. It can also benefit from investments it has made in its corporate and investment banking business and the changes it made in its retail brokerage business, he wrote.
"Wachovia should deliver among the best EPS growth in the sector over the next two to three years," Mr. McDonald wrote. "The company's ability to execute on current opportunities within its franchise, remain disciplined on M&A activity, and steer clear of industry potholes is likely to drive fundamental outperformance" over similar-size banking companies.
He raised his full-year earnings estimate on Wachovia by 4 cents a share, to $4.29.
Kevin Fitzsimmons, an analyst with Sandler O'Neill & Partners LP, said Wachovia does not need to do a deal, though it still might make one.
"They have the organic growth opportunities … and a more diverse earnings mix than plain-vanilla banks," he said in an interview. However, "they have made it clear it's a consolidating industry, and they're going to be continually open to do a deal."
A spokeswoman for the $512 billion-asset Wachovia said Tuesday that it was "pleased with our continued strong performance in organic growth as a company," but she would not comment further.
Regions is integrating its acquisition of Union Planters Corp., the Memphis banking company it acquired in July of last year.
This month Regions said it has converted another 193 of Union Planters' 650 branches. During the week of Aug. 11 the $85.3 billion-asset Regions converted branches in Mississippi and parts of Alabama and Tennessee (including Union Planters' headquarters). The company said it has converted roughly 50% of the Union Planters branches and will convert the rest in early November.
Since acquiring Union Planters, Regions has also been reviewing its business lines and exiting those it considers non-core.
Mr. Bove wrote in his note that "significant change" is under way at Regions. "This will be a more effective organization," he wrote. "It is likely to be leaner with a greater emphasis on each division meeting hurdle rates of return before expanding. As these changes occur Hurricane Katrina will be bringing business in the door. We are now willing to buy this stock."
The company is "making some good moves," Mr. Fitzsimmons said. "They are trying to take a hard look at their earnings mix."
A spokeswoman for Regions would not discuss Mr. Bove's note.
Shares of Regions rose 0.9%, while Wachovia fell 0.8%.
