MKM Partners Previews Banks And Brokers; Maintains Bullish Stance

David Trone of MKM Partners published an earnings preview for Banks and Brokers on Friday heading in to the third quarter. The analyst maintains a Bullish view in his note while reiterating a Buy rating on many of the large-cap banks. “Seasonal factors will obviously create a sequential drop in earnings, perhaps around -13 percent for the five-firm composite,” Trone wrote. “However, a stronger economy and capital markets backdrop should drive about 11 percent year-over-year earnings per share growth, as five percent core top-line growth outpaces one percent core expense growth.”

Third Quarter Earnings Estimates

Bank of America BAC is expected to earn $0.34 per share, representing a 21 percent growth from a year ago, but a 17 percent drop from the previous quarter on seasonality. However, the analyst notes that the current estimates exclude a $5.3 billion litigation expense which could hurt earnings per share by around $0.43. Core revenue is expected to be $21.2 billion, a three percent decline from a year ago. Bank of America is Buy rated with an $18 price target. Citigroup C is expected to $1.18 per share, representing a 16 percent growth from a year ago, but a five percent decline from last quarter, also on seasonality. Core revenue is expected to be $19.2 billion, five percent higher than a year ago, but one percent lower than last quarter. Citigroup is Buy rated with a $56 price target. J.P. Morgan JPM is expected to earn $1.38 per share, in-line with the consensus estimate which is three percent lower than the third quarter a year ago. Core revenue is expected to be $25 billion, flattish from the previous quarter but five percent higher than a year ago. J.P. Morgan is Buy rated with a $65 price target. Goldman Sachs GS is expected to earn $3.19 per share, representing an 11 percent growth from a year ago, but a 22 percent decline from the previous quarter due to “seasonal trends.” Core revenue is expected to be $7.7 billion, 14 percent higher than a year ago but 16 percent lower than last quarter due to “summer slowdowns.” Goldman Sachs is Buy rated with a $213 price target. Morgan Stanley MS is expected to earn $0.56, representing an 11 percent growth from a year ago due to a stronger wealth management and investment banking performance. Core revenue is expected to be $8.2 billion, down four percent from the previous quarter due to lower investment banking and trading revenues but 1.4 percent higher than a year ago. Morgan Stanley is Buy rated with a $41 price target.