JPMorgan and Goldman earnings updates could influence rally in bank stocks

While Goldman Sachs Group Inc. and JPMorgan Chase have had strong stock market performances over the past year, further gains could be expected if the two mega-banks offer upside surprises in their upcoming earnings reports.

JPMorgan Chase JPM,
+ 0.99%,
Citigroup Inc. C,
and Wells Fargo & Co. WFC,
+ 2.13%
will release fourth quarter earnings reports on Friday. Bank of America Corp. BAC,
+ 2.18%
and Goldman Sachs GS,
+ 0.15%
declare the winnings on January 18 and Morgan Stanley MS,
+ 0.61%
provides its fourth quarter update on January 19.

Within the group, JPMorgan Chase is expected to earn $ 3 a share on $ 29.85 billion in revenue, according to analysts polled by FactSet. Wells Fargo’s targets are $ 1.10 per share in net income and $ 18.67 billion in revenue. Citigroup is expected to earn $ 1.55 per share on $ 16.92 billion in revenue.

Bank of America to Report Profit of 77 cents a Share on Revenue of $ 22.17 billion; Goldman Sachs is expected to earn $ 11.75 per share on revenues of $ 12 billion and Morgan Stanley has a profit target of $ 1.94 per share on revenues of $ 14.57 billion.

Wall Street analysts have speculated that rising interest rates would allow banks to increase their net interest margins on loans. With this wind blowing sentiment behind their backs, bank stocks rallied as investors bet that the ongoing economic recovery will benefit the biggest financial players in the space.

See: Bank stocks may struggle to repeat 2021 gains next year, but analysts see grounds for optimism

Goldman Sachs shares have risen nearly 47% in the past 12 months; JPMorgan gained 31%; Wells Fargo is up about 75% over the same period and Morgan Stanley is up about 48%, with Bank of America shares jumping 48%. Citigroup is up about 5.5% in the past year as the group lagging behind.

In contrast, the Dow Jones Industrial Average is up nearly 17% DJIA,
and the S&P 500 SPX,
has increased by about 23% in the past 12 months.

Given the gains in bank stocks, investors looking for more reasons to enter the sector might have reason to rejoice in an increase in credit activity in the fourth quarter compared to the third quarter, such as the US Federal Reserve reported.

Industry, commercial and industrial (C&I)-wide loans increased 6.3% quarter over quarter through December 22, and total C&I loans also increased by 5.5% quarter over quarter. That’s close to the highest quarterly growth over the same period, according to data from the Fed.

“Banks are expected to start 2022 on a good note due to a surge in commercial and industrial loan (C&I) growth at the end of the fourth quarter,” JPMorgan analyst Vivek Juneja said in a note to clients January 6th. be marked by somewhat better net interest income and a strong investment banking, offsetting the further normalization of trading and mortgage banking income and a further increase in spending due to inflation and the rise revenues. “

Juneja raised her price target for Wells Fargo & Co. WFC by + 2.44% to $ 57 per share from $ 53.50 and increased the price target for Bank of America to $ 52.50 from 50 $. He reduced his price target for Citigroup to $ 76 per share from $ 80.50.

Overall, analysts have made more bullish calls on the big banks as they benefit from investment banking income and an expected increase in bankers’ bonuses for 2021.

See also: Wall Street plans up to 40% increase in bonuses

On December 10, UBS analyst Erika Najarian pulled Bank of America up to buy from neutral and raised the bank’s price target to $ 64 per share from $ 37 per share.

UBS also strengthened its position in JPMorgan Chase JPM, to 0.28% buy from neutral and increased its price target to $ 210 per share from $ 149 per share. He upgraded Wells Fargo & Co. to buy from neutral and raised the bank’s price target to $ 65 per share from $ 47. Citigroup C, 2.11% got a downgrade to neutral from buy, with a price target below $ 67 per share, from $ 98.

Najarian said she sees additional value in Bank of America because it is “poised to be the secular winner of the next business cycle and rates, in the same way JPMorgan dominated the recovery from the financial crisis. world by outperforming in terms of profitability “.

Kenneth Leon, research director at CFRA Research, said on Thursday that the US economy is likely to be the main driver of banking performance in 2022, with the Omicron variant creating near-term uncertainty.

The expected Fed interest rate hikes in 2022 will lead to wider spreads and net interest margins, as well as higher net interest income, he said. He views Goldman Sachs as a strong buy and maintains buy ratings on Wells Fargo, Morgan Stanley and Bank of America; with sales notes on Citigroup and JPMorgan Chase.

“We think most diversified banks remain undervalued,” Leon said. “This observation is based on examining price-earnings multiples and tangible price-to-net book ratios in the context of historical valuation measures and against the S&P 500 Index.”

Banks should help shed light on the pace of the economic recovery in the United States and the impact of the Omicron variant, as well as consumer loan growth, which remains below pre-pandemic levels.

Risks to the performance of large bank stocks include an unexpected geopolitical event triggering a recession; high unemployment and a more unfavorable risk environment for investment banking and capital markets, Leon said.

Uncertainties remain over the outlook for consumer and business lending activity in 2022, he said.

With regard to the banking sector in the broad sense, the KBW Bank Index ETF BKX,

trades at around 62% of the S&P 500 price-to-earnings ratio. Over the past 10 years, the index has traded at around 70% of the S&P 500 price-to-earnings ratio.

Overall, analysts are increasingly optimistic about the earnings outlook for the coming quarter for JPMorgan and Goldman Sachs, as the two major banking components of the Dow Jones Industrial Average.

In September, analysts expected fourth quarter earnings of $ 10.09 per share for Goldman Sachs, according to FactSet. This consensus estimate rose to $ 11.67 per share on December 31 and was revised up to $ 11.75 per share on January 7. JPMorgan’s earnings estimate fell from $ 2.85 per share in September to $ 8 as of January 7.

See also: Morgan Stanley improves bank ratings ahead of expected interest rate hikes

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