With money center banks trading at 12.6 times estimated 2018 earnings, versus a historical high of 12.6 times earnings, and regional banks at 13.8 times estimated 2018 versus a historical high of 13.8 times earnings, the message is clear. Without higher earnings something has to give.
A new JPMorgan research report makes the case that many investors are betting on a more hawkish Federal Reserve, which got a new leader this week, continuing to move rates higher in 2018. That combined with massive stock repurchase programs should push the top stocks higher.
The JPMorgan analysts only have five stocks they recommend buying now. Two are big money center leaders and three are top regional banks.
Bank of America
This company posted solid third-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.
Bank of America operates some 5,100 banking centers, 16,300 ATMs, call centers, online and a mobile banking platform. Its third-quarter results beat Wall Street expectations despite a slowdown in its fixed-income trading business.
Bank of America investors are paid a small 1.72% dividend. The JPMorgan price target for the shares is $28.50, and the Wall Street consensus price target was last seen at $28.12. The stock closed trading on Thursday at $27.87 per share.
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 has become a pricey stock market. A continuing stock buyback program is a big positive. The company’s institutional clients group appears to be holding its ground, and this company also reported better-than-expected quarterly results, as its global consumer business showed further revenue growth.
Citigroup investors are paid a 1.72% dividend. JPMorgan has a $78.50 price target for the stock, while the posted consensus price objective is $76.05. The shares closed at $74.42 on Thursday.
This stock 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, institutions and companies.
Strong capital markets revenue, card fees and spread income drove the company’s third-quarter earnings beat. The bank has multiple levers to grow revenue and remains committed to deploying its excess capital. It also may be a better value as compared to some of the other stocks, and many think third-quarter results could beat estimates.
Shareholders of Citizens Financial are paid a 1.86% dividend. The $40.50 JPMorgan target price is about the same as the consensus target of $40.76. The shares were last seen trading at $38.74 apiece.
PNC Financial Services
With consistent earnings growth and a very positive and growing loan portfolio, this is a premiere super-regional bank stock to own. 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.
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.
The company also posted solid third-quarter results, as total revenue increased 2% to $4.1 billion. PNC continues to generate positive operating leverage. Net interest income grew 4% to $2.3 billion, primarily due to higher loan yields and balances. Net interest margin increased seven basis points to 2.91%.
PNC shareholders are paid a 2.19% dividend. JPMorgan has raised its price target to $140.50 from $139.50. The consensus price objective is $140.17. The stock ended trading on Thursday at $138.40 a share.
This top regional has made big strides in traditional banking and with its broker-dealer side. 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 reported net income available to common shareholders of $512 million, as well as earnings per share that increased 3% compared to the prior quarter and 16% compared to the third quarter of last year. For the first nine months of 2017, earnings grew 11% compared to the year-ago period.
Shareholders of SunTrust are paid a 2.64% dividend. The JPMorgan price objective for the shares is $64.50. The posted consensus price target is at $63.94. The stock closed Thursday at $60.64 per share.
These top stocks could really use a pullback in share prices to provide much better and more reasonable entry points. Given the full price values now, investors may want to buy partial positions and see how things unfold over the final two months of the year.