Deutsche Bank On U.S. Big Banks: Boosted Estimates And Price Targets

Deutsche Bank raised estimates and price targets on big U.S. banks, as it expects 25–30 percent of EPS upside from stronger economic growth should drive better loan growth and fee revenues, while higher interest rates should aid net interest margins. The sector should also benefit from less regulation and lower tax rates.

Notably, DB’s U.S. economist Joe LaVorgna recently raised his real GDP growth forecasts to 3 percent in 2017 and 3.3 percent in 2018.

The brokerage also upgraded Goldman Sachs Group Inc GS to Buy from Hold, saying the investment bank should benefit from a strong economy, which would boost its capital market businesses. Further, Goldman too is poised for a stronger macro environment given revenue upside, good cost control and a valuation below peers.

Banking Trends

Lead analyst Matt O'Connor noted that the bank stocks seem to be pricing in higher rates, but not a stronger economy. The BKX has gained about 15 percent since the election versus a 3 percent rise in the S&P 500.

“We sense that leverage to higher rates is mostly reflected in stock prices, but that higher lending and fee volumes from a stronger economy may not be,” O'Connor wrote in a note.

DB's Changes For The Sector

Following are the hike in price target changes for large cap financial institutions in the United States:

• Bank of America Corp BAC: $23 from $17.50.
• Citigroup Inc C: $61 from $49.
• Goldman Sachs: $255 from $180.
• JPMorgan Chase & Co. JPM: $90 from $73.
• Morgan Stanley MS: $43 from $34.
• Wells Fargo & Co WFC: $60 from $49.