With its share price plunging, Regions Financial (NYSE: RF) is becoming an attractive takeover target for a bank such as BB&T (NYSE: BBT) or Wells Fargo (NYSE: WFC). Regions Financial, based in Alabama, has a strong presence in the South, Texas and the Midwest. It would help to expand the market share of BB&T, which is based in North Carolina. Or it could provide an entry into the South for Wells Fargo, which has a small footprint in the region.
The share price of Regions Financial certainly makes it an inviting target. It closed yesterday at $3.90, down from a year high of $8.07. Regions Financial is down almost 10% for the month, over 37% for the quarter, and more than 45% for the year. Over the past five years, Regions Financial was up around 40.
Regions Financial has a dominant market share in many key cities in the 16 states in which it operates. It has about 1800 branches. In metro Birmingham, where it is headquartered, its has about one-quarter of the deposits. According to analysts, Regions Financial is improving its business. One analyst pointed out that bad loans are decreasing and deposits growing. Accounts generating a fee for Regions Financial quadrupled from last year. This would allow an acquirer such as BB&T or Wells Fargo a strong banking presence in the South, Midwest and Texas, where Regions operates.
Regions Financial also has a brokerage subsidiary, Morgan Keegan. Regions acquired Morgan Keegan in 2001. The Memphis, Tennessee-based subsidiary has more than 300 offices in 20 states with over 4000 employess and provides brokerage and investment-banking services. Morgan Keegan offers brokerage house operations to a buyer of Regions Financial or it could be sold if it does not fit into the desired business model.
The book value of Regions Financial is $13.41 a share. Earnings are projected to increase next year by almost 300%. The forward price-to-earnings ratio is estimated at 6.84. For price to free cash flow, it is at 1.29. Despite its problems, there is only a short float of 1.16%. Insider buying is 58.91%. Institutional buying has increased, too.