Goldman Sachs Upgrades State Street, Downgrades UBS And Virtu

Bank stocks are off to a shaky start to 2020. Goldman Sachs updated its coverage of bank stocks on Monday, and the firm believes selection will be critical for back stocks going forward.

The Analysts

Goldman analyst Richard Ramsden downgraded UBS Group AG UBS from Neutral to Sell and cut his price target from $59 to $55.

Analyst Alexander Blostein downgraded Virtu Financial Inc VIRT from Buy to Neutral and cut his price target from $17.75 to $15.50. Blostein also upgraded State Street Corp STT from Neutral to Buy and raised his price target from $76 to $95.

The Thesis

Ramsden said banks should be able to improve returns on equity by another 0.4% in the next two years to an average level of 14.9%. Unfortunately for UBS investors, Ramsden said the stock is overvalued given its operating leverage headwinds.

“We expect USB to experience one of the largest reductions in operating leverage in 2020 - we model -90bp vs -20bp for consensus, and +30bp for peers,” Ramsden wrote in a note.

Blostein said a challenging environment will limit Virtu’s ability to grow revenue, but State Street has the opportunity to exceed Wall Street expectations this year.

“We see the stock as a “self-help” story into 2020 as STT’s ongoing expense initiatives and significantly improving capital flexibility are likely to amplify benefits from stronger revenues conditions, boosting EPS growth well ahead of the Street’s current expectations,” Blostein wrote.

Goldman’s 2020 and 2021 EPS estimates for State Street are 12% and 16% above consensus analyst expectations, respectively.

Benzinga’s Take

The interest rate cuts in 2019 have made life difficult for banks that rely on interest income. However, the booming U.S. economy has allowed top banks to ramp up lending to make up for the low rates.

Do you agree or disagree with these predictions? Email with your thoughts.

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Posted In: Alexander BlosteinGoldman SachsRichard RamsdenAnalyst ColorLong IdeasShort IdeasUpgradesDowngradesPrice TargetAnalyst RatingsTrading Ideas