Truist Earnings: Funding Costs Accelerate, but Hit to Profitability Should Be Manageable

Narrow-moat-rated Truist Financial reported first-quarter results that show some earnings pressure is building, but it is an amount that we view as quite manageable. The bank decreased its full-year revenue growth outlook to 5%-7% from 7%-9%. Given that this was driven almost entirely by lower net interest income, it implies to us a roughly $500 million drop in expected NII for 2023, or roughly a 3% decline from our previous outlook. This is nothing disastrous. We had already expected fourth-quarter results would approximate the peak for profitability in the current rate cycle, and while the drop-off from that peak has accelerated a bit, it is nothing categorically different. As we incorporate these results, we expect roughly a mid- to high-single-digit percentage decline in our $57 fair value estimate as we incorporate slightly lower revenue and slightly higher expenses. We still view the shares as undervalued.