While the top financials have done well for the most part this year, the shares of some of the top companies have been hit recently as weaker loan growth, lower trading revenues and pressured net interest margins have all weighed on the stocks. The good news for investors looking to buy the top banks is that valuations, while not cheap, are right about in the middle of the historic range.
In a new research report, JPMorgan is reasonably upbeat on the sector going forward. The report noted this:
We expect share buybacks and controlled expenses to be the key drivers of earnings per share growth for large banks as we look out through 2019. We remain Optimistic on the potential for some regulatory improvement over the next few years. Key uncertainties are the political environment and impact of Fed balance sheet shrinkage. If the political environment changes and there is progress in tax reform and/or infrastructure spending, it would boost economic growth and benefit banks.
The analysts raised their price targets on five top banks that are rated Overweight at the firm. All make sense for growth portfolios looking to add financials to the mix.
Bank of America
The company posted solid second-quarter results. 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 second-quarter earnings per share and revenue exceeded consensus estimates of analysts polled by Thomson Reuters. Revenue from the company’s fixed income trading unit also topping expectations, though it represented a 14% year-over-year decline. The bank attributed the decline to “weaker performance in rates and emerging markets relative to a strong year-ago quarter.”
Bank of America investors are paid a 1.97% dividend. The JPMorgan price target for the stock was raised to $27.50 from $26.00, and the Wall Street consensus price target is $26.96. The shares closed trading Friday at $24.38 apiece.
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Citigroup
This top bank has broken out of a long trading range and could push even higher. 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 times estimated 2018 earnings, the bank looks very reasonable in what is becoming a pricey stock market. A continuing stock buyback program is a big positive. The company’s institutional clients group appeared to be holding its ground last quarter, and while guidance when they released results in January was conservative and somewhat disappointing, the stock is cheap at this level.
Citigroup investors are paid a 1.85% dividend. The $73.50 JPMorgan price target was raised to $77.50. The posted consensus price objective is $72.92, and the stock closed on Friday at 69.04 a share.
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Citizens Financial Group
This remains a 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, institution and companies.
Strong capital markets revenue, card fees and spread income drove the company’s second quarter earnings beat. The bank has multiple levers to grow revenue and remains committed to deploy its excess capital. It also may be a better value as compared to some of the other stocks, and many think third-quarter results could beat estimates.
Its shareholders are paid a 2.05% dividend. JPMorgan has a $40.50 target, and that’s up from the old $39.00 price objective. The consensus target price is $39.14. The share price ended last week at $35.16.
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PNC Financial Services
This top regional bank has traded sideways this year and is still offering a solid entry point. 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 of PNC are paid a 2.34% dividend. JPMorgan raised its price target to $138.50 from $131.00, while the consensus target was last seen at $132.48. The stock closed Friday at $128.19 a 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 $205 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 is growing its institutional and capital markets segment at a breakneck pace.
Shareholders are paid a 2.92% dividend. The JPMorgan price objective is $60.50, and the consensus price target is at $61.47. The stock closed most recently at $54.83.
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The recent pullback in share prices for all these top companies have provided much better entry points than what was available earlier this year. Still, investors may want to buy partial positions now and see how things unfold when the third-quarter earnings results are released.
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