US Banks Q3 Earnings Preview: Why Bank Of America Analysts Are Bullish On Financial Stocks

Third-quarter earnings season for U.S. banks officially begins this Friday.

Among the financial heavyweights reporting earnings this week are JPMorgan Chase & Co. JPM, BlackRock Inc. BLK, Citigroup Inc. C, Wells Fargo Co. WFC and PNC Financial Services PNC.

Company	Q3 Earnings (consensus)	Q3 Revenue (consensus)
JP Morgan Chase & Co.	$3.86	$39.55bn
Blackrock Inc.	$8.63	$4.61bn
Citigroup	$1.24	$19.22bn
Wells Fargo	$1.25	$20.11bn
PNC Financial Services	$3.19	$5.34bn

A recent research note from Bank of America provides a compelling overview of what investors can anticipate for banks.

Bank of America analysts — Ebrahim H. Poonawala, Brandon Berman, Isiah Austin, and Gabriel Angelini — held discussions with their clients. It appears that both institutional and hedge funds are displaying a strong bullish inclination towards JPMorgan.

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JPMorgan

Investors are keenly interested in U.S. banks showing potential for further upward revisions in net-interest income (NII). They’re also keeping a close eye on expense management.

Per Bank of America’s assessment, JPMorgan is best positioned to navigate an environment of persistently higher interest rates.

This is attributed to various factors, including the purchase of First Republic. JPMorgan also tapped John China — a three-decade veteran of Silicon Valley Bank — as co-head of Innovation Economy. These moves demonstrate effective management response to market disruptions.

Bank of America views JPMorgan’s stock as attractively valued at 10 times the forward price-to-earnings ratio, offering a substantial discount compared to the S&P’s 17.8 P/E.

Consequently, Bank of America maintains a Buy rating on JPMorgan shares. The price target hovers at $174, or 20% higher than current prices.

Bank of America expresses reservations about Wells Fargo, citing declining net-interest income and uncertainties surrounding share buybacks in light of macroeconomic and regulatory factors.

Nonetheless, Wells Fargo is rated as a “Buy” by BofA, with a price target of $50. That’s over 25% higher than current market prices.

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Citigroup

Regarding Citigroup, Bank of America acknowledges CEO Jane Fraser’s effective strategy of de-risking the franchise through consumer business exits, simplifying the organization, and making necessary investments for regulatory compliance.

Bank of America rates Citigroup shares as “Buy” with a price target of $60, which is 45% higher than current prices.

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Bank of America maintains its Buy rating on Morgan Stanley, recognizing it as one of the strongest global financial franchises, well-equipped to navigate an unpredictable operating environment. However, analysts highlight some uncertainty surrounding rising regulatory challenges and the potential risks associated with CEO James Gorman’s retirement. The price objective for Morgan Stanley is set at $100, about 24% higher compared to where the stock price currently trades.

Goldman Sachs

In the case of Goldman Sachs, Bank of America holds a bearish stance on Q3 earnings compared to consensus estimates. They have reduced their projection for 3Q 2023 EPS to $4.97, citing markdowns on commercial real estate exposure.

Nevertheless, Bank of America continues to endorse a “Buy” rating with a $388 price target, or about 22% above current prices, as they see an opportunity to invest in Goldman Sachs at discounted valuations, trading at 1.1 times price-to-tangible-book-value, which could offer exposure to a potential rebound in investment banking activity.

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