Skip to main content

Market Overview

Citi's Q1 Earnings Cheat Sheet For U.S. Banks

Share:
Citi's Q1 Earnings Cheat Sheet For U.S. Banks

Citi prefers JPMorgan Chase & Co. (NYSE: JPM) and Citizens Financial Group Inc (NYSE: CFG) heading into the "weak" first quarter earnings season, while Goldman Sachs Group Inc (NYSE: GS) and KeyCorp (NYSE: KEY) remain its top picks in the banking space.

"No surprise 1Q is going to be a weak quarter; favor JPM and CFG in 1Q," analyst Keith Horowitz wrote in a note.

He continued, "We estimate 1Q16 EPS of $1.28 for JPM, 2c ahead of consensus of $1.26. While this could be a nice headline to kick off earnings season, we don't see this as a sign of things to come as we expect misses or inline results relative to consensus for 13 of our 18 names as weaker fee revenue across trading, Ibanking, asset management, and servicing businesses, as well as higher provision expense due to reserve builds for Energy are expected to weigh on earnings in 1Q."

Related Link: The Fed's Dominance Over The Banking Industry In 1 Striking Chart

"We see the beat for JPM driven mainly by lower expenses relative to consensus while we think an inline result for CFG could drive near-term outperformance given the recent weakness in the stock," Horowitz noted.

A Cautious Warning

But, the analyst warned investors against "using that (JPM beat) as a read-through to the group.

"Overall, we expect results mostly below consensus in 1Q16 for our coverage. We see downside for regional names – We expect results to be below consensus for 7 of our 11 regional names in 1Q16," Horowitz elaborated.

The analyst sees the biggest misses for Regions Financial Corp (NYSE: RF) and SunTrust Banks, Inc. (NYSE: STI).

"We expect a 2c miss for RF driven by both higher expenses, which we think may be driven by higher compensation expense. We see a 5c miss for STI on lower I-banking fees and higher provision expense."

Citi sees downside for the capital markets names. Earnings of Goldman Sachs and Bank of America Corp (NYSE: BAC) are expected to be below consensus at $2.34 and $0.21, respectively.

Related Link: Bank Of America Recommends Coca-Cola Ahead Of Other Beverage Stocks

The brokerage sees the most downside for Morgan Stanley (NYSE: MS). "We estimate 1Q16 EPS of $0.42 for MS, 19% below consensus of $0.52. On BAC," the analyst said he "expect miss but bar is fairly low for capital markets names and would not expect significant underperformance."

Best Value

However, the analyst continues to see the best value in Goldman and KeyCorp.

"GS and KEY remain our top picks in the group. For KEY, we see the FNFG increasing ROTE by roughly 200 bp which should lead to multiple expansion," the analyst noted.

Horowitz continued, "For GS, we believe the market is overly focused on very challenging markets and with the stock trading below tangible book value we believe the market is underestimating GS ability to recalibrate the model to deliver double digit returns and/or the probability that markets can improve quickly."

Horowitz added, "Although we see misses for both names in 1Q we don't think investors need to wait to establish positions in these names as we think the bar is already fairly low for both. As a result, a miss in 1Q is unlikely to drive significant near-term underperformance, but we would add to existing positions on any weakness."

Meanwhile, the brokerage lowered its target price for Goldman by $7 to $185, but raised target prices for Comerica Incorporated (NYSE: CMA) by $5 to $42 and Fifth Third Bancorp (NASDAQ: FITB) by $1 to $18.

Latest Ratings for BAC

DateFirmActionFromTo
Apr 2021Deutsche BankMaintainsBuy
Mar 2021Morgan StanleyMaintainsUnderweight
Jan 2021Atlantic EquitiesUpgradesNeutralOverweight

View More Analyst Ratings for BAC
View the Latest Analyst Ratings

 

Related Articles (BAC + CFG)

View Comments and Join the Discussion!

Posted-In: Citi Keith HorowitzAnalyst Color Price Target Previews Analyst Ratings Trading Ideas Best of Benzinga

Latest Ratings

StockFirmActionPT
FOARaymond JamesInitiates Coverage On15.0
TZOONoble Capital MarketsUpgrades18.0
IMAXWedbushUpgrades26.0
EIGBoenning & ScattergoodUpgrades49.0
HUYA86 ResearchUpgrades22.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
SPAC
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com