When all of the tailwinds merge to bring about the perfect storm for any Wall Street sector, you can expect all the proverbial ships to benefit and get a lift from the rising water. That was surely the case in the first quarter, as higher interest rates, improved credit profiles and most of all perhaps, lower taxes, helped to drive revenues for the top U.S. banks.
The good thing for investors is that those trends look to stay in place for some time.
In a new Jefferies research report, the financial equity strategy team is very positive on all the strong tailwinds the top banks are benefiting from, and while not all banks are created equal, the team is very positive on four of the major banks that serve business and consumers in the United States.
The report noted this:
Equity strategist Sean Darby remains bullish on US financials despite concerns around a flattening of the yield curve. Credit spreads have tightened, financial conditions remain relaxed and both the FDIC and Senior Loan Officer surveys are upbeat for the banks. He believes that equity markets can live with higher yields and a shift of the yield curve upwards. He expects loan growth to have bottomed and thinks it will provide a tailwind for the banks.
Bank of America
The company posted solid first-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 5,100 banking centers, 16,300 ATMs, call centers, online and mobile banking platforms.
Bank of America’s earnings rose in the first-quarter, and the company said it plans to open 500 new branches as it issued upbeat financial results that topped Wall Street forecasts. The reported net income of $6.9 billion, or $0.62 per share, exceeded the predictions of financial analysts surveyed by S&P Capital IQ. Revenue for the January-to-March period totaled $23.1 billion, up from $22.2 billion for the same stretch last year, and higher than the analysts’ forecast.
Bank of America investors are paid a 1.6% dividend. The Jefferies price target for the shares is $35, and the Wall Street consensus target was last seen at $34.91. The stock closed Friday’s trading at $30.15 per share.
This is a smaller large cap bank that is often off the Wall Street radar, but it may provide a very compelling investment idea. Comerica Inc. (NYSE: CMA) is a financial services company headquartered in Dallas, Texas, and strategically aligned by three business segments: business bank, retail bank and wealth management. It operates branches in Arizona, California, Florida, Michigan and Texas, as well as in Canada and Mexico.
Top analysts are confident the company can deliver on its efficiency initiatives and is trying hard to maximize shareholder return. While some have lowered the firm’s net interest income estimates, that should be offset by lower provisions for loss. A rise in interest rates would certainly be a tailwind.
Comerica’s first-quarter earnings per share jumped 51% to $1.54, beating Wall Street expectations. However revenue rose 7% to $793 million but missed consensus estimates. Comerica’s average total business loans for the quarter crept up to $48.4 billion from a year ago but slipped from the fourth quarter.
Comerica shareholders are paid a 1.59% dividend. Jefferies has a price objective of $105, and the posted consensus target price is $104.29 a share. The stock closed most recently at $96.29.