At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

Time to bail on the regional bankers?
Over the past year, shares of regional banker Huntington Bancshares (NAS: HBAN) have soared 51%. BB&T (NYS: BBT) is up a sprightly 59%, while SunTrust (NYS: STI) is shining brightest of all, with a 63% gain in 52 weeks. Impressive gains, one and all, but according to one other banker, the rally in regional banking is getting a bit long in the tooth -- and it may be time to take some money off the table and start counting your winnings.

This morning, an analyst at Bernstein made essentially this argument in defense of his decision to downgrade each of Huntington, BB&T, and SunTrust from "outperform" to "market perform." While not counseling outright selling, Bernstein seems to believe that the days where regional banks outperform "Big Banking" are at an end. From here on out, excess returns look dubious. But is Bernstein right about that?


Well, let's take a look at the valuations, compare them with a few stalwarts among the regionals' larger competitors, and see if we can figure this out:

Bank

P/E Ratio

Growth Rate

Dividend Yield

SunTrust 19.5 17.4% 0.7%
BB&T 14.0 10.5% 2.4%
Huntington 11.4 5.7% 2.3%
Bank of America 10.3 7.8% 0.4%
JPMorgan Chase 9.6 6.8% 2.9%

Right off the bat, you can see clear differentiation between the two groups of banks -- regional versus national/international -- as regards two things: the growth rates Wall Street is projecting for the companies, and the prices investors have been willing to pay for this growth. In general (and with Huntington being the exception that appears to prove the rule), investors are expecting to see double-digit earnings growth out of America's regional banks, but only mid-single-digit growth at bigger bankers like B of A and JPMorgan.

In at least one instance, this optimism seems justified. SunTrust, boasting heady growth of 17.4% projected for the next five years, sports the highest P/E ratio on the chart, largely justified by chart-topping growth. In contrast, BB&T -- and in particular Huntington -- are showing more muted growth expectations that don't appear to justify the share prices.

Bigger isn't always better
Now, this isn't necessarily an argument in favor of buying big bankers rather than small. For example, Bank of America's weak growth prospects and minimal dividend payout suggest that even 10 times earnings may be too much to pay for that stock. JPMorgan, on the other hand, looks cheap enough that you might actually want to own it.

While it's true that America's biggest bank (by revenues) will have difficulty growing bigger, or faster than the smaller fries, JP's sub-10 P/E ratio certainly doesn't look expensive. Meanwhile, its industry-leading dividend yield is substantial, even if growth may be subpar.

Alone on the list, JPMorgan boasts a combined growth rate-plus-dividend yield that's larger than its P/E ratio -- the key criterion for defining a "value stock" according to investing master John Neff. To me, that makes the stock No. 1 on my personal list for banking stocks to consider. But there are a lot of unknowns for the big banks. Some of our Fool analysts think there's more than meets the eye at Bank of America, too. Want to learn more? Read our new, premium research report on Bank of America, and we'll fill you in on the details.

The article This Just In: Upgrades and Downgrades originally appeared on Fool.com.

Fool contributor Rich Smith has no position, long or short, in any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 301 out of more than 180,000 members. The Motley Fool owns shares of Bank of America, JPMorgan Chase, and Huntington Bancshares. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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