Banking, finance, and taxes
JPMorgan Has 5 Large Cap Banks to Buy Right Now
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If any sector exploded out of the election, it was the banks, and especially the large cap leaders. Recently, those same stocks have backed off as investors took profits, and more importantly, concerns over regulatory and tax reform and a sharp drop in loan growth hit the top stocks. While first-quarter earnings may not be blockbuster, increases in net interest margins should help buffer the slowdown in loan growth.
In a new research report, JPMorgan makes the case that bank stocks are attractively valued now relative to the overall market, and with the prospect of rising rates, and a less onerous regulatory tone, the rest of 2017 looks bright. The analysts also note that despite the big moves in the sector, banks are trading in the middle of the range over the past 25 years in periods of economic recovery.
These five stocks are rated Overweight at JPMorgan.
Bank of America
The company posted solid fourth-quarter results, and it expects a significant increase in net interest income for the current quarter. Bank of America Corp. (NYSE: BAC) is a ubiquitous presence in the United States, providing various banking and financial products and services for individual consumers, small and middle market businesses, institutional investors, corporations and governments in the United States and internationally. It operates some 5,100 banking centers, 16,300 ATMs, call centers, online and a mobile banking platform.
The company is one of the larger lenders to the oil and gas industry, and it told analysts earlier this year that it had set aside more money for coverage of loans to the industry that may go bad. Overall credit quality remained strong, while consumer portfolios continued to improve and commercial portfolios remained stable with energy improving. Trading was soft in the fourth quarter but should price up in the first quarter.
Bank of America investors are paid a small 1.35% dividend. The JPMorgan price target for the stock is $25, and the Wall Street consensus price target is $25.39. The stock closed Thursday at $23.26 per share.
Citigroup
This top bank is trading at the same level it was in the summer of 2015. Citigroup Inc. (NYSE: C) has approximately 200 million customer accounts and does business in more than 160 countries and jurisdictions. It provides consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management.
Trading at a still very cheap 10.7 times estimated 2017 earnings, this company look very reasonable in what is becoming a pricey stock market. A continuing stock buyback program at the bank is a positive. The bank’s institutional clients group appeared to be holding its ground last quarter, and while guidance when it released the quarter in January was conservative and somewhat disappointing, the stock appears cheap at this level.
Citigroup investors are paid a 1.07% dividend. The $65 JPMorgan price target is more or less in line with the consensus price objective of $64.74. Shares closed most recently at $59.89 apiece.
Citizens Financial
This is the top financial pick across Wall Street. Citizens Financial Group Inc. (NYSE: CFG) operates 1,200 branches primarily throughout 11 states across the New England, Mid-Atlantic and Midwest regions. It has consolidated total assets of $137 billion, ranking as the 13th largest bank in the United States by assets. The company offers a broad range of retail and commercial banking products and services to more than 5 million individuals, institutions and companies.
The company’s most recent results beat expectations, and revenue growth was very solid as both fee and spread income beat estimates. Another plus was the very solid guidance for this quarter, and with rates increasing, especially last month, the bank could come in strong with first-quarter results.
Shareholders are paid a 1.61% dividend. JPMorgan has a $38.50 price objective, while the posted consensus target is at $37.93. The shares closed Thursday at $34.92.
PNC Financial Services
This top regional bank was down almost 10% in March but has started to rebound. PNC Financial Services Group Inc. (NYSE: PNC) is one of the country’s largest diversified financial services organizations. It provides retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; and wealth management and asset management. With consistent earnings growth and a very positive and growing loan portfolio, the company is a premiere super-regional bank stock to own.
Wall Street analysts point to numerous positives, including the bank implementing huge cost savings plans. The bank is working on up to $100 million of new savings announced last year, and it is also applauded for outstanding credit/risk management and the limited exposure to the capital markets related areas, while focusing on traditional banking.
Shareholders are paid a 1.85% dividend. The JPMorgan price target is $129.50. The consensus target is $128.30, and the stock closed Thursday at $119.26 per share.
SunTrust Banks
This company has made big strides in traditional banking and with its broker-dealer side, and it is another top regional to consider. SunTrust Banks Inc. (NYSE: STI) is an Atlanta-based banking organization with total assets of around $173 billion, and it is the eighth largest bank in the United States by deposits and branches.
Established in 1985, when Trust Company of Georgia merged with Florida’s SunBank, SunTrust offers a wide variety of financial products ranging from deposit and credit services to capital markets and investment management to a broad range of institutional and retail clients.
The company has dramatically expanded the SunTrust Robinson Humphrey broker dealer business, and it saw the largest rise in first-quarter investment banking fees, per Dealogic, up a stunning 69% year over year and 37% quarter over quarter.
SunTrust shareholders are paid a 1.9% dividend. JPMorgan has set its price objective at $60, close to the consensus target of $60.72. The stock closed most recently at $55.56.
The March pullback in share prices for all these top companies has provided much better entry points than what was available just a short two months ago. Still, investors may want to buy partial positions now and see how the quarter comes out.
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