Banking, finance, and taxes

Why Jefferies Top Value Picks Include Some of the Biggest US Banks

By Lee Jackson Updated Jan 30, 4:57PM EST · Published Aug 27, 7:05AM EDT

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Why Jefferies Top Value Picks Include Some of the Biggest US Banks — © _ultraforma_ / Getty Images

The bank stocks have taken a beating since second-quarter earnings rolled in last month, and the plunge in interest rates this summer has exacerbated the move out of the group. Lower interest rates affect net interest margin, which is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits), relative to the amount of their interest-earning assets.

A new Jefferies research report notes that while declining interest rates are generally a negative for the banks, they do favor the companies with more fixed-rate loans with longer average life. The firm highlighted seven Buy-rated stocks, and these four are the biggest by market capitalization.

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Citigroup

This top bank stock has been clipped over the past month and is offering a stellar entry point. Citigroup Inc. (NYSE: C | C Price Prediction) 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 8.1 times estimated 2019 earnings, this company looks very reasonable in what remains a pricey stock market. A continuing stock buyback program at the bank also is a positive.

Citigroup investors receive a 3.25% dividend. The Jefferies price target for the shares is $82, while the Wall Street consensus price objective is $83. Shares closed trading Monday at $62.72 apiece.

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Fifth Third Bancorp

This top super-regional bank is incredibly cheap now. Fifth Third Bancorp (NASDAQ: FITB) is a diversified financial services company and the indirect parent of Fifth Third Bank, an Ohio-chartered bank. As of June 30, 2019, Fifth Third had $169 billion in assets and operated 1,207 full-service banking centers and 2,551 ATMs with Fifth Third branding in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina.

In total, Fifth Third provides its customers with access to approximately 53,000 fee-free ATMs across the United States. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending and Wealth & Asset Management.

Fifth Third is among the largest money managers in the Midwest and, as of June 30, 2019, had $399 billion in assets under care, of which it managed $46 billion for individuals, corporations and not-for-profit organizations through its trust and registered investment advisory businesses.

Shareholders receive a 3.78% dividend. Jefferies has a $34 price target, and the consensus target is $31.69. The stock was last seen trading at $25.41.

IberiaBank

This top mid-cap bank has some serious upside to the Jefferies target. IberiaBank Corp. (NASDAQ: IBKC) is a financial holding company with 278 combined offices, including 180 bank branch offices and three loan production offices in Louisiana, Arkansas, Tennessee, Alabama, Texas and Florida. It also has 21 title insurance offices in Arkansas and Louisiana, mortgage representatives in 65 locations in 12 states, eight locations with representatives of IberiaWealth Advisors in four states and one IberiaCapital Partners office in New Orleans.

The company posted solid second-quarter results that topped consensus expectations. The company also expects outstanding second-half 2019 results, driven by a higher fee income outlook. In addition, management has kept a laser focus on boosting shareholder returns and delivering on targets, which should drive continued stock outperformance.

The dividend yield is 2.50%. The whopping $90 Jefferies price target compares with the $87.85 consensus figure. The shares closed at $68.88 on Monday.

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Signature Bank

This regional bank has a leading presence in New York City and is a Wall Street favorite. Signature Bank (NASDAQ: SBNY) is a full-service commercial bank with 29 private client offices throughout the New York metropolitan area. The bank’s growing network of private client banking teams serves the needs of privately owned businesses, their owners and senior managers.

Signature Bank also offers a wide variety of business and personal banking products and services. Its specialty finance subsidiary, Signature Financial, provides equipment finance and leasing as well as transportation and taxi medallion financing. Signature Securities Group, a wholly owned subsidiary, is a licensed broker-dealer, investment adviser and member FINRA/SIPC, offering investment, brokerage, asset management and insurance products and services.

Investors receive a 1.95% dividend. The Jefferies price target is $140. The consensus price objective is $141.89, and shares closed at $115.09.

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Shares of these four top banks have dropped significantly in price since earlier in the summer, and all are offering solid entry points for investors looking to add shares. With second-quarter earnings out of the way, and some smoother sailing possibly ahead for the industry, these stocks make good sense for long-term growth accounts now looking for value plays in the financial sector.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.