Banking, finance, and taxes

JPMorgan Says Buy 5 Top Banks on Recent Sector Weakness

Lee Jackson

Published: May 2, 2017 8:20 am

Last Updated: January 12, 2020 12:26 pm

While the earnings season is set to wind down after what was a very solid quarter, one sector has been weak since March, and despite posting some solid results, has only partially recovered. JPMorgan is out with a new research report, and its analysts feel there is some solid value for patient investors. The report noted this:

As we look ahead into the second quarter, we expect large bank earnings to remain moderate and credit quality overall to remain good. Large bank stocks are attractively valued relative to the market, trading closer to the low end of the historical range of relative P/E multiples to the S&P 500 seen during periods of economic recovery.

With credit quality at the top companies in solid shape, and deposits rising at a faster than expected rate, the overall outlook appears good. While investment banking levels were softer in April than March in some areas, the analysts see the hiccup as seasonal and partly due to some uncertainty. They expect the rest of the quarter to improve.

These five stocks are rated Overweight at JPMorgan.

Bank of America

The company posted solid first-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.

Bank of America investors are paid a small 1.3% dividend. The JPMorgan price target for the stock is $25, and the Wall Street consensus target is $25.39. The stock closed most recently at $23.61 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 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.

Citigroup investors are paid a 1.08% dividend. JPMorgan has a $65 price target for the shares. The posted consensus price objective is $64.74, and the shares closed on Monday at $59.46 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 first-quarter 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 1.51% dividend. The $39 JPMorgan price objective compares with the consensus target price of $37.93. The shares closed on Monday at $37.13.

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 in PNC are paid a 1.85% dividend. JPMorgan has set its price target at $129.50. The consensus target is $128.30, and the stock closed most recently at $121.15 a share.

Sun Trust 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. The JPMorgan price objective is $60, which is close to the consensus estimate of $60.72. The shares closed on Monday at $57.75 apiece.

The pullback in share prices for these top banks has provided much better entry points than what was available just a few short months ago. Still, investors may want to buy partial positions now and see how things unfold in the second quarter.