JPMorgan Stays Very Selective on Large Cap Banks to Buy

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While the recent stress tests and Comprehensive Capital Analysis and Review (CCAR) results were very positive for the banking industry as a whole, many of the stocks have been on a pretty solid run since the election last November. Add in the fact that the Federal Reserve has already raised rates twice this year, and many on Wall Street remain very bullish on the sector. But the truth of the matter is that much of the positive news already is priced in, so being selective now makes very good sense for investors.

In a new research report from J.P. Morgan, while the analysts keep Buy ratings on five large cap leaders, they do note that there are possible headwinds to second-quarter earnings. The team also said this in the report:

We continue to recommend large cap bank stocks medium term because of benefit from changing regulatory environment, as reflected by the recent Treasury proposal and 2017 CCAR results. Valuation is reasonable. Money center banks are trading at 11.6 times 2018 earnings-per-share which represents 66% relative P/E multiple to S&P 500 (versus 59-75% historically during periods of economic recovery).

Here are the five bank stocks that are still rated Buy 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 reported quarterly revenue that handily beat consensus estimates and was up 7% from a year ago. And earnings blew out expectations. This is very good news, as Bank of America’s business continues to improve at a faster-than-expected pace.

Bank of America investors are paid a small 1.21% dividend. The JPMorgan price target for the stock is $26, and the Wall Street consensus target is at $25.97. The stock closed most recently at $24.71 per share.

Citigroup

This top bank is trading at just above the 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, and capital markets, while still tepid, could grow the rest of the year.

Citigroup investors are paid a 0.95% dividend. JPMorgan has a $72 price target for the stock. The posted consensus price objective is $65.74, and the shares closed on Thursday at 67.63.