BofA Raises Bank Stock Price Targets, Sees Potential For 'Significant EPS Upside'

Bank stocks are off to a hot start to 2021, and one analyst said Tuesday the early-year momentum will likely continue in the quarters ahead.

The Analyst: Bank of America analyst Erika Najarian raised her price target for U.S. bank stocks by an average of 11%. Here are several of her Buy-rated picks:

• JPMorgan Chase & Co. JPM, target raised from $163 to $181.
• Citigroup Inc C, target reiterated at $100.
• Wells Fargo & Co WFC, target raised from $39 to $43.
• M&T Bank Corporation MTB, target raised from $183 to $190.

Related Link: 6 Catalysts Bank Stock Investors Should Watch In 2021

The Thesis: Najarian said there are three primary reasons she is bullish on bank stocks:

• The economic recovery is rapidly gaining steam, and Bank of America is forecasting 6.5% U.S. GDP growth in 2021.
• Bank of America economists recently raised their year-end 2021 10-Year Treasury yield forecast to 2.1%.
• Recent conversations with banking industry insiders suggest banks may exceed consensus 2021 earnings estimates.

“If the economy does indeed heat up, >60% of bank loans are priced off the short end of the curve, creating significant EPS upside when the Fed decides to raise short rates,” Najarian wrote in a note.

She named Citigroup her top stock pick among large-cap bank stocks along with M&T and Fifth Third Bancorp FITB. Her top stock picks among small- and mid-cap banks stocks are East West Bancorp, Inc. EWBC, Signature Bank SBNY and First Horizon Corp (Tennessee) FHN.

Benzinga’s Take: Banks will likely continue to deal with historically low interest rates weighing on net interest margins in 2021 and beyond. Yet bank balance sheets are far more healthy in 2021 than they were back in 2010 during the recovery from the last economic crisis.