5 Analyst Bank Stock Picks That Are Huge Share Buyback Winners

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If there is a set of data results that regulators and the Federal Reserve feel much better about, it’s the recent bank stress test results and the Comprehensive Capital Analysis and Review (CCAR), which was very positive for some of the top banks. The “too big to fail” argument has stayed in vogue and in the regulators’ lexicon since the meltdown in 2008 and 2009. That is with good reason: The banking system was breathtakingly close to failing, and everybody agrees we can’t let the situation deteriorate like that again.

In new Deutsche Bank research report, the analysts feel that some of the top banks are far bigger winners than others, but at the margin they feel that the results overall are very positive for the banking sector. They had three specific reasons why:

  1. Both share buybacks and dividend increases beat expectations.
  2. The results show that banks are more in control of managing their capital levels/deployment.
  3. It supports the view that regulatory pressures are easing on the sector after years of stringent policy.

The analysts also noted this in their report:

While capital deployment levels came in higher than we expected, combined dividend and buyback yields are up just 2.3% versus last year. This may not be enough to offset future earnings pressures from the flattening yield curve, sluggish loan growth, and disappointing capital market revenues (assuming these trends continue).

There were some big winners in the group, and here we focus on the stocks rated Buy at Deutsche Bank.

BB&T

Deutsche Bank is very positive on this company, as it has fared very well. BB&T Corp. (NYSE: BBT) is a Winston-Salem, North Carolina-based financial services company with more than $180 billion in assets. With a history dating back to the Civil War, and now currently the ninth largest U.S. bank by deposits and sixth largest by number of branches, BBT offers a wide variety of different financial products ranging from consumer and commercial banking to securities brokerage and asset management.

The bank increased the dividend to $0.33 a share from $0.30, which came in above the Deutsche Bank estimates of $0.32. The company plans on buying back $1.8 billion in shares, beginning next quarter, and that was also above the estimates of $1.71 billion.

Shareholders receive a 2.65% dividend. The Deutsche Bank price target for the shares is $49, while the Wall Street consensus target is $47.27. Shares closed Thursday at $45.61.

Goldman Sachs

This continues to be the gold standard of Wall Street banks and trades at a reasonable 13 times estimated 2017 earnings. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.

Deutsche Bank sees the dividend rising to $1.00 from $0.75. The report also noted this:

Capital plan also included share buybacks (not quantified) and the possible issuance and redemption of other capital securities. Note we had assumed $7 billion of repurchases but based on CCAR and DFAST results, estimated buybacks could be closer to $10 billion.

Goldman Sachs shareholders receive a 1.35% dividend. Deutsche Bank has a $255 price objective, and the consensus target price is $244.08. Shares closed Thursday at $224.41.