One sector that was absolutely demolished in the most recent quarter was the financials, and with second-quarter earnings right around the corner, there could be some very positive tailwinds for the sector as we start the third quarter. With the market seemingly in a very precarious position, despite the fact that the economy looks to be in the best shape in years, banks may be an outstanding buy.
A new Deutsche Bank research report notes that the recent positive results from the comprehensive capital analysis and review (CCAR) may be very good for some of the top bank stocks the firm covers. The CCAR is an annual exercise and review of financial institutions by the Federal Reserve to see that they can account for their unique risks and have sufficient capital to continue operations through times of economic and financial stress.
In the report, the analyst handicapped who came out best in the review, and they said this:
The banks separately disclosed planned dividend increases and buybacks for the next four quarters. Overall, results were positive and should provide some lift to bank stocks which have sold off in recent weeks and are down 11% since highs on February 1st of this year. In aggregate, capital payouts are poised to rise ~25% vs. last cycle and buybacks plus dividends are projected to imply a combined 9.2% yield.
Deutsche Bank cited three banks that posted results that were better than expected, and shares of all three are rated Buy.
This smaller cap bank could be an outstanding addition for more aggressive portfolios. Huntington Bancshares Inc. (NASDAQ: HBAN) operates as a holding company for the Huntington National Bank, which provides commercial, small business, consumer and mortgage banking services. Its Retail and Business Banking segment offers financial products and services, including checking accounts, savings accounts, money market accounts, certificates of deposit, consumer loans and small business loans, as well as investments, insurance, interest rate risk protection and foreign exchange and treasury management services.
The company’s Commercial Banking segment provides corporate risk management and institutional sales, trading, and underwriting services; commercial property and casualty, employee benefits, personal lines, life and disability, and specialty lines of insurance; and brokerage and agency services for residential and commercial title insurance, as well as excess and surplus product lines of insurance.
Huntington also offers automotive and commercial real estate financing, and a regional private bank and private client business.
Investors are paid a solid 2.98% dividend. The Deutsche Bank price objective for the shares is $18, and the Wall Street consensus estimate is $17.50. The stock traded early Monday at $14.85.
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.
Despite posting solid first-quarter results, the bank has suffered some during the second quarter. Deutsche Bank keeps a positive stance on the shares as the senior management’s focus on efficiency and the very positive CCAR results could reignite a tailwind for the stock.
Shareholders are paid a 2.42% dividend. Deutsche Bank has price target of $78, and the consensus target is $75.48. The stock was trading at $66.45.
Though this large cap bank is a solid value play for 2018, it still faces the possibility of large fines. 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. The company trades at 10.85 times estimated 2019 earnings.
Wells Fargo shareholders are paid a 2.81% dividend. The $69 Deutsche Bank price target compares with the $60.91 consensus target. Shares were last seen at $55.55.
Three top bank stocks to buy, none of which are trading anywhere close to their 52-week highs, and all pay solid and dependable dividends. In a pricey and much more volatile market, they all make sense for growth accounts looking to add financials.