The market is too pessimistic about next year's earnings. Exiting low-return lending should fund investment without sacrificing much profit. Our twelve-month target is $53.20, but January's spending plan must demonstrate that the recovery can survive higher investment.
Key points
- $5.07 a share is our 2027 earnings estimate, excluding exceptional transaction charges.
- $12.9 billion is our 2027 expense allowance, including renewed investment.
- $53.20 a share is our twelve-month target, supporting a Buy.
The call
The price assumes earnings slip. At our valuation of 10.5 times annual earnings, today's price requires $4.48 a share, below September's adjusted earnings pace. That caution has substance: deposits are growing, but customers increasingly want interest. The stock has lagged the market by 13 percentage points over three months.
Deposit growth is coming from accounts that pay interestTruist October 16, 2026 release; quarterly average balances, $ billions.
We expect modest improvement, not a transformation. Selling weak lending businesses removes revenue but also funding costs and credit losses. Replacing low-yielding securities helps preserve profit. January's investment plan should show whether savings can fund better branches and payments services. We assume neither another securities trade nor interest-rate cuts.
Valuation
| Our 2027 estimates and valuation | Figure |
|---|
| Lending income after funding costs, tax-equivalent basis | $14.80 billion |
| Fees and other income | $7.00 billion |
| Operating expenses | $12.90 billion |
| Credit-loss provision | $1.35 billion |
| Adjusted diluted earnings | $5.07 a share |
| Twelve-month target at 10.5 times unrounded earnings | $53.20 a share |
The calculation uses a 17% tax-equivalent tax rate, $440 million of preferred dividends and 1.15 billion average diluted shares, assuming continued repurchases. The restrained multiple recognizes unfinished execution and rising software and outside-processing bills beneath stable headline costs. A downside case of $4.20 earnings at nine times gives $37.80; this is a measured recovery investment, not a low-risk bargain.
The investment budget decides the upsideOur 2027 expense scenarios; all other assumptions unchanged; October 16, 2026.
Risks
- Spending outruns savings: watch January's budget and quarterly expenses against our annual allowance.
- Loan exits weaken earnings more than expected: watch lending income after LightStream closes, rather than improving return percentages alone.
- Commercial credit deteriorates: watch troubled business loans and losses on the remaining portfolio, excluding businesses sold.
What would change my mind
I would withdraw the Buy if the January plan cannot support approximately $5 a share of 2027 earnings without another large reserve release or securities transaction.
