Fifth Third (NASDAQ:FITB): Rochdale's Dick Bove upgrades to Buy from Sell

Rochdale's Richard Bove is upgrading Fifth Third (NASDAQ:FITB) to Buy from Sell and is raising his target to $15 from $9.

The earnings estimates have been adjusted as follows: a) the projected loss for 2010 has been reduced to $0.30 per share from $0.45 per share; b) the profit projection for 2011 has been increased to $0.58 per share from $0.38 per share; and c) an initial estimate of $1.28 per share is being made for 2012. The normalized earnings estimate has been increased to $1.75 per share from $1.69 per share.

- It appears that the automobile industry may have turned the corner. Ford reported a meaningful profit for the year (F/$11.41/NR). The President has requested tax credits for capital expenditures and job creation in the State of the Union message. This is the single most effective action Congress can take to maintain the economy’s growth.

Fifth Third’s key markets of Ohio and Michigan may have hope for the first time in three years. This potential turnaround is very apparent in the bank’s loan quality figures. The bank’s non-performing loans were down by 2.3% in the quarter, sequentially. Its net charge-offs fell by 6.3%. This is a clear indication that loans are not coming on to the books as quickly as they are being written off.

The improvement in charge-offs is showing up in every loan category except commercial real estate. However, even in this category non-performing loans are falling. Loans 90-days past due plunged by 42.8% in the quarter. Bove notes that no other bank that he covers comes close to this improvement.

Approximately, 57% of the bank’s loans are in the commercial sector. It still has part of the processing business it sold. Plus, it has a corporate services business and an asset management subsidiary so it is positioned properly – i.e., not consumer oriented.

The company’s infra-structure has been improved and a new management team has been crafted after a multi-year struggle. The time has come to buy Fifth Third.

Notablecalls: This is a pretty strongly worded call from Bove & it will likely capture the attention of investors. It's quite clear he is being conservative with his $15 target and will use coming improvements in fundamentals to up it.

Chart looks good for a breakout in the $13 range.

Regional banks have been strong of late (on hopes of tier-1 players coming in to buy some) & I expect that to continue in the n-t.