A perfect storm seems to be brewing for the banking industry, and despite some massive gains last year, some companies look like they could still deliver outstanding total returns to shareholders in 2018. With interest rates edging higher and commercial and industrial loan growth looking to improve in 2018, there appear to be some solid bank stock choices for investors to consider.
The Deutsche Bank team led by Matt O’Connor remains positive on selected stocks, especially those that may have underperformed the overall sector in 2017. The report noted this:
Strong pipelines, an improving economy, and tax reform all support a pickup in C&I loan growth at banks. Supply/demand factors within fixed income markets could also help. For example, a meaningful rise in U.S. corporate debt maturities over the next two years is expected at the same time as QE is reduced.
We screened the Deutsche Bank banking research universe and found four stocks rated Buy on which the analysts have raised their price targets.
This continues to be the gold standard of Wall Street banks and trades at a very reasonable 11.6 times Deutsche Bank’s estimated 2018 earnings. Goldman Sachs Group Inc. (NYSE: GS) has a gigantic institutional equity, debt and derivatives business, an ultra-high net worth clientele, top investment banking and capital markets expertise. The bank continues to be a dominant force around the world and is one of the most sought after in the world. And it is one of the very few that dictate who can be a client at the firm.
Fourth-quarter earnings beat analyst expectations, and Deutsche Bank in turn raised its 2018 earnings per share estimate 5% above consensus.
Goldman Sachs shareholders receive a 1.12% dividend. The Deutsche Bank price objective was raised to $281 from $255, and the Wall Street consensus target price is $266.76. Shares closed Thursday at $269.03.
This bank has posted outstanding quarterly results and may be among the best buys in the banking and investment arena. Morgan Stanley (NYSE: MS) is a global investment bank with leading positions in investment banking (M&A and equity underwriting), equity trading and wealth management, which contributes nearly 50% of firmwide revenues. The firm also has an asset management business, which adds to the lower-risk business profile the firm has pursued since the financial crisis.
The company fourth-quarter results that beat analyst expectations on the top and bottom lines, excluding a charge related to the tax bill, as strong results in wealth management offset a big drop in fixed income trading revenue.
Morgan Stanley investors receive a 1.76% dividend. The $51 Deutsche Bank price target was raised to $60, and the consensus target is $59.96. Shares closed Thursday’s trading at $56.81.
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 $173 billion and 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.
For the fourth quarter of 2017, SunTrust reported net income of $710 million and diluted earnings per share that were up 24% relative to 2016, as a result of strong revenue growth, improved profitability and reduced shares outstanding.
Shareholders receive a 2.27% dividend. Deutsche Bank raised its $65 price objective to $78. The consensus target is $74.23, and shares closed Thursday at $70.60.
This large cap bank is a solid value play for 2018. Wells Fargo & Co. (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.8 trillion in assets. The company provides banking, insurance, investments, mortgage and consumer and commercial finance through 8,700 locations, 12,800 ATMs, the Internet and mobile banking. It also has offices in 36 countries to support customers who conduct business in the global economy. Wells Fargo serves one in three households in the United States.
Wells Fargo has slowly, but surely, become one of the biggest mortgage lending companies in the United States, in addition to its normal banking and brokerage businesses. A continued increase in commercial real estate lending could really boost the bank’s bottom line and overall revenue.
While earnings beat analysts’ estimates for the fourth quarter, revenue, net interest income and net interest margins all fell short of expectations. Wells Fargo management emphasizes that 2018 should be a different story. With positive industry catalysts and several initiatives designed to restore consumer confidence in the bank, it’s indeed possible that 2018 could be a much better year for the bank.
Wells Fargo shareholders receive a 2.38% dividend. The Deutsche Bank price target was raised to $72 from $60. The consensus target is $66.16, and shares closed Thursday at $65.65.
Four top banks to Buy that are still offering investors a reasonable valuation and some solid upside potential. With bank earnings out of the way for the quarter, investors may want to add partial positions here and see if we don’t get a pullback when the earnings season concludes.