Barclays Is Bullish On Bank Stocks, Upgrades Goldman Sachs, Morgan Stanley

Bank stocks finished strong in 2020 on optimism surrounding an economic rebound in 2021 and the resumption of buybacks starting in the first quarter.

On Monday, one investment bank analyst team said banks are set for tremendous earnings growth in 2021 and beyond.

The Bank Analyst: Barclays analyst Jason Goldberg issued the following ratings changes to large-cap bank stocks under his coverage:

• Ally Financial Inc ALLY upgraded from Equal Weight to Overweight, price target raised from $30 to $48.
• Citigroup Inc C downgraded from Overweight to Equal Weight, price target raised from $63 to 72.
• Goldman Sachs Group Inc GS upgraded from Equal Weight to Overweight, price target raised from $270 to $362.
• Morgan Stanley MS upgraded from Equal Weight to Overweight, price target raised from $60 to $88.
• SVB Financial Group SIVB downgraded from Overweight to Equal Weight, price target raised from $305 to $440.
• Zions Bancorporation NA ZION downgraded from Overweight to Equal Weight, price target raised from $41 to $50.

Related Link: Bank Stocks Rise On Buyback Optimism

The Bank Thesis: Goldberg raised price targets for most of the banks he covers and said lower loss provisions and aggressive buybacks will work wonders for bank EPS.

“Following an expected 30%-plus decline in EPS at the median bank in 2020, we believe over 50% growth is possible over the next two years,” the analyst said. 

In addition to earnings growth, Goldberg said bank earnings multiples could also expand once investors fully appreciate how well the industry navigated the 2020 crisis.

Barclays isn’t expecting rising interest rates to boost bank margins anytime soon, but said they could potentially be a longer-term catalyst as well, especially if the unprecedented 2020 stimulus measures trigger a spike in inflation.

In the near-term, Goldberg said spiking coronavirus cases remain a risk for bank stocks. In addition, he said fintech disruptors and an unfriendly new U.S. presidential administration also create negative headline risks.

Benzinga’s Take: Banks will continue to deal with zero interest rates weighing on net interest margins in 2021 and beyond.

Yet  bank balance sheets will be far more healthy in 2021 than they were back in 2010 during the recovery from the last economic crisis.