If any sector exploded out of the election, it was the banks, and especially the large cap leaders. Recently, those same stocks have backed off as investors took profits, and more importantly, concerns over regulatory and tax reform and a sharp drop in loan growth hit the top stocks. While first-quarter earnings may not be blockbuster, increases in net interest margins should help buffer the slowdown in loan growth.
In a new research report, JPMorgan makes the case that bank stocks are attractively valued now relative to the overall market, and with the prospect of rising rates, and a less onerous regulatory tone, the rest of 2017 looks bright. The analysts also note that despite the big moves in the sector, banks are trading in the middle of the range over the past 25 years in periods of economic recovery.
These five stocks are rated Overweight at JPMorgan.
Bank of America
The company posted solid fourth-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 is one of the larger lenders to the oil and gas industry, and it told analysts earlier this year that it had set aside more money for coverage of loans to the industry that may go bad. Overall credit quality remained strong, while consumer portfolios continued to improve and commercial portfolios remained stable with energy improving. Trading was soft in the fourth quarter but should price up in the first quarter.
Bank of America investors are paid a small 1.35% dividend. The JPMorgan price target for the stock is $25, and the Wall Street consensus price target is $25.39. The stock closed Thursday at $23.26 per share.
This top bank is trading at the same 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 10.7 times estimated 2017 earnings, this company look very reasonable in what is becoming a pricey stock market. A continuing stock buyback program at the bank is a positive. The bank’s institutional clients group appeared to be holding its ground last quarter, and while guidance when it released the quarter in January was conservative and somewhat disappointing, the stock appears cheap at this level.
Citigroup investors are paid a 1.07% dividend. The $65 JPMorgan price target is more or less in line with the consensus price objective of $64.74. Shares closed most recently at $59.89 apiece.