Truist Financial Analyst Turns Bearish After CEO Shakeup

Truist Financial Corp’s (NYSE:TFC) decision to hire an external CEO signals "strategy reset risk," according to BofA Securities analyst Ebrahim Poonawala.

The Truist Financial Analyst: Poonawala downgraded the rating from Buy to Neutral, while keeping the price target at $56.

The Truist Financial Thesis: The CEO transition announcement increases the risk that the company will reset its near-term outlook, Poonawala said in the downgrade note.

Check out other analyst stock ratings.

The analyst noted that the incoming CEO Mike Lyons, who is scheduled to join on September 1, has a strong operating background, with more than 13 years at PNC Financial Services Group Inc (NYSE:PNC).

He wrote, however that the decision to hire externally seems to be "an implicit acknowledgment that nearly seven years after the BB&T/SunTrust merger closed, management’s strategy is falling short."

Given these factors and the tougher rate environment, the stock could struggle to outperform until investors gain confidence that the new CEO can close the profitability gap relative to peers, Poonawala stated.  

Truist offers among the lowest returns among super-regional banks, despite its efforts to improve returns, the analyst mentioned. Management reaffirmed the target of achieving 15% ROTCE (return on tangible common equity) by 2027, compared with an average of more than 17% among super-regional peers, he added.

"Given the challenges shareholders have endured, we see limited appetite for another multi-year turnaround before evidence of tangible progress emerges," Poonawala further wrote.

The Turnarounds That Worked

Poonawala noted the following turnaround playbooks that have recently worked:

• Bank of New York Mellon Corporation (NYSE BNY) under CEO Robin Vince, who joined after a long career at Goldman Sachs
• Toronto-Dominion Bank (NYSE:TD) under CEO Ray Chun, although he was not an external hire
• US Bancorp (NYSE:USB) under CEO Gunjan Kedia
• Fifth Third Bancorp (NYSE:FITB) under CEO Greg Carmichael (2015-2022) and CEO Tim Spence

TFC Price Action: Shares of Truist Financial had declined by 3.45% to $49.59 at the time of publication on Wednesday.

Image: Shutterstock