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.
Citizens Financial Group
This remains a 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, institution and companies.
Strong capital markets revenue, card fees and spread income drove the company’s first-quarter earnings beat. The bank has multiple levers to grow revenue, and it remains committed to deploy its excess capital. Citizens Financial also may be a better value as compared to some of the other stocks, and many think second-quarter results could beat estimates.
Citizens Financial investors are paid a 1.53% dividend. The $39 JPMorgan price objective compares with the consensus target price of $37.93. The shares closed on Thursday at $36.60 apiece.
PNC Financial Services
This top regional bank was down over 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 of PNC are paid a 1.85% dividend. JPMorgan has set its price target at $130, and the consensus target is $128.87. The stock closed Thursday at $126.01 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 $205 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 1.81% dividend as of last look, but that yield will jump closer to 2.8% after the post-CCAR dividend hike approval is formally paid out to shareholders. The JPMorgan price objective is $60.50. The consensus target price is $61.47, and the stock closed Thursday at $57.36.
The recent pullback in share prices for these top companies have provided somewhat better entry points. Still, investors may want to buy partial positions now and see how things unfold when the second-quarter earnings results are released.
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