U.S. Bank Rally Continues After Bullish Takes From Analysts, Barron’s

The shares of a number of large banks are extending their rally from Friday after analysts at JPMorgan and BMO Capital expressed optimism about the outlook of several names in the sector and Barron’s reiterated its bullish view of the space. JPMorgan upgraded Morgan Stanley (MS) and Goldman Sachs (GS) to Overweight, and BMO Capital predicted that Morgan Stanley’s stock could more than double.

WHAT’S NEW: JPMorgan analyst Kian Abouhossein upgraded Morgan Stanley to Overweight from Neutral and raised Goldman Sachs two notches, to Overweight from Underweight. The analyst named Goldman as his top U.S. investment bank pick. Both Goldman and Morgan Stanley will buy back the equivalent of 23% of their market caps of their shares over the next several years, Abouhossein predicted. Goldman is the most stable investment bank in JPMorgan’s coverage universe, as its operating leverage will enable its return on equity to exceed its cost of equity, predicted Abouhossein. He expects the company’s book value per share to increase at a 5% annual clip. Meanwhile, the analyst says that Morgan Stanley’s decision to reduce its fixed income business will improve its profitability. He set a $180 price target on Goldman and a $29 price target on Morgan Stanley. However, Abouhossein identified Deutsche Bank (DB) as his favorite global investment bank stock. Deutsche’s current valuation implies that the company may need to issue additional shares of stock, but that’s unlikely to occur, as the bank’s funding and liquidity appear to be “adequate,” he stated. Abouhossein kept a $24 price target and Overweight rating on the shares. The low valuations of Bank of America (BAC), Citigroup (C), Goldman Sachs, Morgan Stanley and Wells Fargo (WFC) make those stocks “look appealing over the next one to two years,” wrote Barron’s, which noted that it had touted bank stocks on January 30. Blaming the decline of bank stocks this year on “misplaced concerns,” BMO Capital’s James Fotheringham predicted that a number of names in the sector could surge tremendously. Investors’ concerns about the banks are unwarranted because credit quality should continue to improve, while U.S. banks’ capital levels “are more than adequate,” the analyst stated. Fotheringham identified OneMain Holdings (OMF), Morgan Stanley, Capital One (COF), Citi, Synchrony (SYF), and MasterCard (MA) as stocks in the sector that can surge by large amounts. He upgraded OneMain to Outperform from Market Perform and estimated that the stock could soar 120% from current levels. Fotheringham believes that Morgan Stanley can jump 104%, Capital One can rally 73%, Citi can jump 62%, MasterCard can increase 31% and Synchrony can rise 39%.