While the top financials have done well for the most part this year, the shares of some of the top companies have been hit recently as weaker loan growth, lower trading revenues and pressured net interest margins have all weighed on the stocks. The good news for investors looking to buy the top banks is that valuations, while not cheap, are right about in the middle of the historic range.
In a new research report, JPMorgan is reasonably upbeat on the sector going forward. The report noted this:
We expect share buybacks and controlled expenses to be the key drivers of earnings per share growth for large banks as we look out through 2019. We remain Optimistic on the potential for some regulatory improvement over the next few years. Key uncertainties are the political environment and impact of Fed balance sheet shrinkage. If the political environment changes and there is progress in tax reform and/or infrastructure spending, it would boost economic growth and benefit banks.
The analysts raised their price targets on five top banks that are rated Overweight at the firm. All make sense for growth portfolios looking to add financials to the mix.
Bank of America
The company posted solid second-quarter results. 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 second-quarter earnings per share and revenue exceeded consensus estimates of analysts polled by Thomson Reuters. Revenue from the company’s fixed income trading unit also topping expectations, though it represented a 14% year-over-year decline. The bank attributed the decline to “weaker performance in rates and emerging markets relative to a strong year-ago quarter.”
Bank of America investors are paid a 1.97% dividend. The JPMorgan price target for the stock was raised to $27.50 from $26.00, and the Wall Street consensus price target is $26.96. The shares closed trading Friday at $24.38 apiece.
This top bank has broken out of a long trading range and could push even higher. 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 while guidance when they released results in January was conservative and somewhat disappointing, the stock is cheap at this level.
Citigroup investors are paid a 1.85% dividend. The $73.50 JPMorgan price target was raised to $77.50. The posted consensus price objective is $72.92, and the stock closed on Friday at 69.04 a share.