Second-quarter earnings season is behind us when it comes to most of the big banks and financial institutions. Sterne Agee’s bank research team published a list of its top stock picks to buy in the banking sector. We have featured the top large-cap and mid-cap stocks to buy from their list, and the first thing that should stand out is that Sterne Agee has price targets that are considerably higher than the consensus price targets.
On average, the Sterne Agee price targets on these stocks assume an estimated 14 price-to-earnings (P/E) multiple based on the firm’s 2016 earnings estimates. These picks also come with an average potential upside of 24%, if you include all of its banking recommendations.
24/7 Wall St. included the coverage notes from Sterne Agee and the price targets. We then added in the dividend yields for a comparison, and we also looked at the consensus price target from Thomson Reuters. In addition, we have named the Sterne Agee analyst responsible for each of the individual bank stock analyst calls, with their quotes used from the report.
Fifth Third Bancorp (NASDAQ: FITB) was listed as the first large-cap bank stock on Sterne Agee’s post-earnings buy list. The firm has a $25 price target, versus a $20.30 current price. Fifth Third’s consensus price target is $23.74, and the dividend yield is roughly 2.4%. Analyst Terry McEvoy said:
The company is well positioned for above-peer balance sheet growth given its operating footprint. The sequential improvement in credit trends with commercial net charge-offs down 68% was a big positive takeaway from 2Q14 results. We would also note the capital flexibility connected to Fifth Third’s 23% investment in Vantiv Holdings (VNTV, $32.78, Not Rated), which has an unrealized value of ~$1.0B today. Despite double-digit core EPS growth (excluding Vantiv gains) forecast in 2015 and 2016, the stock trades at the lowest P/E in the group.
SunTrust Banks Inc. (NYSE: STI) was next in large-cap banks. Sterne Agee has a whopping $48 price target, versus a $37.80 price and a $42.56 consensus price target. Its yield is 2%, and the firm’s Terry McEvoy said:
SunTrust’s core businesses and reputation in the marketplace remain favorable. We believe improving demographic trends in the company’s Southeast markets will translate into a higher valuation consistent with what STI experienced pre-crisis. The company is quietly more asset sensitive than most assume with the published interest rate sensitivity not reflecting the run-off of commercial loan swaps. We are modeling 19% EPS growth in 2016.