Market Overview

Goldman Diverges On 2 Big Banks: Reiterates Conviction Buy On Bank of America, Downgrades Citi

Goldman Diverges On 2 Big Banks: Reiterates Conviction Buy On Bank of America, Downgrades Citi
Related BAC
Holiday Shopping and Retail Sector Impact
Technical Alert: Bank Of America Continues To Rally
Banks continue surge on higher rates, lower regulation (Seeking Alpha)
Related C
Barron's Picks And Pans: 2017 Picks, Retail Stocks, AT&T And More
Fast Money Traders Share Their Bank Picks
Banks continue surge on higher rates, lower regulation (Seeking Alpha)

The stock valuations of Bank of America Corp (NYSE: BAC) and Citigroup Inc (NYSE: C) are attractive, and both companies offer improved returns through cost restructuring, Goldman Sachs’ Richard Ramsden said in a report. He added, however, that while the former could offer 10 percent ROTCE by 2018, the latter would likely continue falling short of its target.

Ramsden reiterated a Buy rating on Bank of America and raised the price target from $17 to $19. He downgraded the rating on Citigroup from Buy to Neutral and reduced the price target from $52 to $50.

Related Link: Deutsche Bank Looks To Bank Of America, JPMorgan To Predict Where Wells Fargo's Stock Is Headed Next

Bank of America

“We believe BAC is hitting an inflection point with operating leverage being driven by a combination of low single digit revenue growth, absolute reductions in the expense base, and stable credit,” Ramsden wrote. He expected the company to generate revenue growth of ~4 percent per annum through 2018, backed by growth initiatives in the consumer bank and wealth management.

Moreover, cost restructuring is unlikely to impact revenues, since most of the expense initiatives “stem from lower data center costs and continued run off in the LAS portfolio.” The analyst added that Bank of America could generate EPS growth of a 13 percent CAGR through 2018, significantly higher than the peers average of 4 percent.


“The [previously anticipated] earnings inflection has failed to materialize and ROEs are currently well below management’s 10% target at 7.7%,” Ramsden pointed out. He added that although significant investments had been made into higher return businesses, such as credit cards, the macro environment would keep Citigroup’s earnings under pressure.

“Ultimately, we view this story as centered around capital returns, which we see as a dormant theme until next year’s CCAR process,” the analyst added.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

Latest Ratings for BAC

Dec 2016Standpoint ResearchDowngradesBuyHold
Nov 2016Deutsche BankMaintainsHold
Nov 2016Keefe Bruyette & WoodsUpgradesMarket PerformOutperform

View More Analyst Ratings for BAC
View the Latest Analyst Ratings

Posted-In: Goldman SachsAnalyst Color Long Ideas Downgrades Price Target Reiteration Analyst Ratings Trading Ideas Best of Benzinga


Related Articles (BAC + C)

View Comments and Join the Discussion!