Second-quarter earnings season is behind us when it comes to most of the big banks and financial institutions. Sterne Agee’s bank research team published a list of its top stock picks to buy in the banking sector. We have featured the top large-cap and mid-cap stocks to buy from their list, and the first thing that should stand out is that Sterne Agee has price targets that are considerably higher than the consensus price targets.

On average, the Sterne Agee price targets on these stocks assume an estimated 14 price-to-earnings (P/E) multiple based on the firm’s 2016 earnings estimates. These picks also come with an average potential upside of 24%, if you include all of its banking recommendations.

24/7 Wall St. included the coverage notes from Sterne Agee and the price targets. We then added in the dividend yields for a comparison, and we also looked at the consensus price target from Thomson Reuters. In addition, we have named the Sterne Agee analyst responsible for each of the individual bank stock analyst calls, with their quotes used from the report.

Fifth Third Bancorp (NASDAQ: FITB) was listed as the first large-cap bank stock on Sterne Agee’s post-earnings buy list. The firm has a $25 price target, versus a $20.30 current price. Fifth Third’s consensus price target is $23.74, and the dividend yield is roughly 2.4%. Analyst Terry McEvoy said:

The company is well positioned for above-peer balance sheet growth given its operating footprint. The sequential improvement in credit trends with commercial net charge-offs down 68% was a big positive takeaway from 2Q14 results. We would also note the capital flexibility connected to Fifth Third’s 23% investment in Vantiv Holdings (VNTV, $32.78, Not Rated), which has an unrealized value of ~$1.0B today. Despite double-digit core EPS growth (excluding Vantiv gains) forecast in 2015 and 2016, the stock trades at the lowest P/E in the group.

ALSO READ: How to Crash-Proof Your Portfolio for August and the Rest of 2014

SunTrust Banks Inc. (NYSE: STI) was next in large-cap banks. Sterne Agee has a whopping $48 price target, versus a $37.80 price and a $42.56 consensus price target. Its yield is 2%, and the firm’s Terry McEvoy said:

SunTrust’s core businesses and reputation in the marketplace remain favorable. We believe improving demographic trends in the company’s Southeast markets will translate into a higher valuation consistent with what STI experienced pre-crisis. The company is quietly more asset sensitive than most assume with the published interest rate sensitivity not reflecting the run-off of commercial loan swaps. We are modeling 19% EPS growth in 2016.

East West Bancorp (NASDAQ: EWBC) was in the Mid-Cap Growth bank stocks with a Buy rating at Sterne Agee. The team there has a $43 price target, versus a $33.75 price now. The consensus price target is $39.90, and the bank pays a 2% dividend yield to its common holders. Sterne Agee’s Brett Rabatin said:

With strong loan growth (25% LQA) and the NIM above expectations on a core basis, we view EWBC’s 2Q14 results as better than expected and believe the catalysts of continued above-peer-average loan growth and profitability remain intact. Over the next few quarters, we believe the Street expectations will rise toward our above-consensus estimates. In addition to growth continuing to exceed expectations, we believe profitability will likely remain high despite the interest rate environment.

Signature Bank (NASDAQ: SBNY) was also rated as Buy in the Mid-Cap Growth sector with a $144 price target. That compares to a share price of around $114, and the consensus price target is $140. Sterne Agee’s Peyton Green said:

Historically, Signature’s capital offerings have almost always been followed up by stronger than expected AEA growth due to a pick-up in deposit and/or loan growth. Exceptional EPS growth — over the 90-day and two-year periods — has resulted in strong share price performance. Given that SBNY’s business model emphasizes deposit growth, regardless of the rate environment, we believe the likelihood has increased that SBNY will post stronger AEA growth than we have modeled.

ALSO READ: Merrill Lynch’s Top Oversold Stocks Even Before the Sell-Off

PrivateBancorp (NASDAQ: PVTB) was last among the Mid-Cap Growth bank stocks. Sterne Agee’s Terry McEvoy has a Buy rating and $35 price target, above the $32.81 consensus price target and well above the $28.45 current share price. McEvoy said:

Strong core fee income growth in 2Q14 and multiple quarters of above-peer loan growth led us to increase our estimate post 2Q14 results. Private is positioned to benefit from rising short rates in late ’15 and into ’16 as roughly 66% of total loans are re-priced off 30-day LIBOR which should drive NIM expansion potentially in 2016. Over the near term we see loan growth surprising on the upside reflecting the successful business transformation.

TCF Financial Corp. (NYSE: TCB) was listed as a Buy rating win the Mid-Cap Value bank stocks. Sterne Agee’s Terry McEvoy has a $19 price target, up from the $17.56 consensus price target and up from the $15.60 current share price. McEvoy said:

The transformation of the company away from free-checking accounts and home equity loans appears to have been a success with the TCF of today still core funded but with a more diversified loan portfolio and revenue mix. Core banking trends experienced in 2Q14 at TCF Financial solidified our belief that the company is now firmly on a path to improving sustainable profitability. Investments made in new lending businesses are bearing fruit, while some of the legacy sources of revenue are stabilizing, all while expenses remain in check.

ALSO READ: A New ETF That Solely Tracks Billionaires

TFS Financial Corp. (NASDAQ: TFSL) was listed as Buy in the Mid-Cap Value bank sector with a $16 price target. This is the only one of the mid-cap and large-cap bank stocks where Sterne Agee is not higher than the consensus analyst price target (also at $16). Sterne Agee’s Matthew Breese said:

We remain positive on shares on TFSL given the termination of the longstanding MOU and quick return to capital deployment. As one of the last remaining large MHCs in the country, we believe TFSL represents a true, deep value opportunity for long-term investors. Given the MHC structure, we focus on fully converted tangible book value and minority tangible book value, and by both measures, the stock appears undervalued, trading at 83% and 56%, respectively.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.