Banking, finance, and taxes

Banks Are Dirt Cheap: 5 Analyst Top Picks for the Rest of 2020

Lee Jackson

Published: July 14, 2020 9:39 am

For old-timers, the action in the FAANG stocks is reminiscent of the dot-com bull market and implosion of 1999 and 2000. However, this is not really the case this time. While tech is expensive, the top companies leading the charge make money. One sector that is very inexpensive now is the financials. Many banks are trading at an incredibly cheap one times book value.

Low interest rates, tightening credit standards and a host of other issues have clouded the sector, and with Wall Street anticipating bankruptcy filings in both energy and retail, investors have fled the sector. The Jefferies team has zeroed in on five top stocks that are incredible values now, and with bank earnings for the big money center players coming this week, it may be time to jump in.

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The firm noted this in its report:

We anticipate that results for the second quarter of 20 will be messy, but believe that most have been well-articulated in advance. Balance sheets will be meaningfully inflated, Net interest margin will be pummeled, and provision expense will be eye-popping again. Looking ahead, while we expect second quarter pre-provision net revs. (PPNR) to look good, forward pressures from lower rates and a likely slowdown of activity are likely to weigh going forward. On credit, we see elevated provisioning due to the uncertain economic outlook.

Here are the five top pick banks stocks to Buy now at Jefferies.  It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision. 

Citigroup

Shares of this top bank are trading at the lowest levels since 2018. 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 8.4 times estimated 2021 earnings, this one looks very reasonable in what remains a volatile stock market. That noted, the company posted solid second-quarter results, beating on both the top and bottom lines, this Tuesday morning, and the shares traded higher in premarket action.

Investors receive a 3.85% dividend. The Jefferies price target for the shares is $60, while the Wall Street consensus price objective is $69.29. Citigroup stock closed trading on Monday at $52.20.

KeyCorp

This is another top bank that makes good sense for investors for the rest of 2020. KeyCorp (NYSE: KEY) operates as the bank holding company for KeyBank National Association, which provides deposit, lending, cash management and investment services to individuals, small and medium-sized businesses.

The company also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets banner

Investors receive a monster 6.36% dividend, which the bank already has said will remain intact for the third quarter. Jefferies has a $13 target price, but the consensus price target is $13.45. KeyCorp stock closed Monday at $11.76, up over 5% on the day.

This off-the-radar company makes great sense for investors looking for a solid regional winner. Truist Financial Corp. (NYSE: TFC) is a bank holding company, incorporated in North Carolina and headquartered in Charlotte. The company was formerly known as BB&T, but it changed its name in December 2019 upon the acquisition of SunTrust Banks.

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The transition to the Truist brand will take about two years. Until then, customers of both BB&T and SunTrust will be served through their respective bank branches using the same apps, websites and services as before the merger closed.

As part of the regulatory approval process, the new company will sell off 30 SunTrust branches in North Carolina, Virginia and Georgia to First Horizon Bank and divest $2.4 billion in deposits to “mitigate the competitive effects of the merger,” according to the Federal Reserve.

Truist’s footprint is located in one of the strongest and fastest-growing regions of the United States, and the analysts expect the company to maintain a competitive advantage over many of its competitors headquartered outside its footprint due to its being physically located in the southeast part of the country.

Investors receive a 5.05% dividend. The $40 Jefferies target compares with the $43.10 consensus figure. Truist Financial stock ended Monday at $35.61 per share.

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.

Jefferies has set a $119 price target. The consensus price objective is $125.79, and Signature Bank stock closed trading at $105.74 on Monday.

Western Alliance Bancorp

This is another off-the-radar bank, based in Phoenix, that looks poised for a strong second half of 2020. Western Alliance Bancorp (NYSE: WAL) is a bank holding company engaged in the provision of deposit, lending, treasury management, international banking and online banking products and services for businesses.

Earnings projections for Western Alliance Bancorp’s second quarter ending June 30, 2020, and the full-year expectations for 2020 and 2021 have been adjusted. The second-quarter earnings estimate has been raised to $0.79 per share from the previous consensus forecast of $0.73. The full-year estimate for 2020 has been raised to $3.58 per share from $3.42. In contrast, the full year 2021 estimate has been reduced from $4.47 per share to $4.29.

Shareholders receive a 2.48% dividend. The Jefferies price objective is $42. The consensus target price is $40.29, and the last trade for Western Alliance Bancorp stock hit the tape at $35.15 on Monday.

The analysts only have one major money center bank to go along with four targeted regional plays, all of which are in high-growth areas of the United States. It should be noted that this remains a contrarian play, and with earnings for banks starting Tuesday, things could get volatile, but the early results look promising.