Why This Analyst Is Raising Big Bank Price Targets Ahead Of Q3 Earnings

Big bank earnings season kicks off next week, and one Wall Street analyst took the opportunity on Friday to raise his price targets for some big bank stocks ahead of next week’s headlines.

The Analyst: Among his price target changes, Bank of America analyst Ebrahim Poonawala made the following adjustments to his bank stock coverage:

• Reiterated Buy rating for JPMorgan Chase & Co. (NYSE: JPM), price target raised from $182 to $190.
• Reiterated Buy rating for Goldman Sachs Group Inc (NYSE: GS), price target raised from $440 to $455.
• Reiterated Buy rating for M&T Bank Corporation (NYSE: MTB), price target raised from $180 to $193.
• Reiterated Buy rating for Truist Financial Corp (NYSE: TFC), price target raised from $66 to $74.
• Reiterated Buy rating for First Republic Bank (NYSE: FRC), price target raised from $230 to $240.

Related Link: Is Bank of America's Stock Overvalued Or Undervalued?

The Bank Stock Thesis: In the note, Poonawala also issued his first 2023 and 2024 EPS guidance for megacap bank stocks. 

“We believe that having a 2024 forecast provides investors with a lens into the earnings power for the group assuming a backdrop of higher interest rates, normalized credit costs, moderating capital markets/mortgage activity and some rebalancing in balance sheet mix following a historic influx of deposit liquidity,” the analyst said. 

Here’s a rundown of the earnings numbers he’s expecting from big banks in the next several years:

• JPMorgan: $13.96 in 2021, $11.50 in 2022, $12.30 in 2013 and $13.85 in 2024.
• Goldman Sachs: $53.18 in 2021, $37.10 in 2022, $33.50 in 2023 and $34.10 in 2024.
• Citigroup Inc (NYSE: C): $10.05 in 2021, $8.25 in 2022, $8.65 in 2023 and $9.35 in 2024.
• Wells Fargo & Co (NYSE: WFC): $4.11 in 2021, $3.55 in 2022, $4.30 in 2023 and $5 in 2024.
• Morgan Stanley (NYSE: MS): $7.49 in 2021, $6.86 in 2022, $7.08 in 2023 and $7.82 in 2024.

Among the five megacap bank stocks, Citgroup currently trades at the lowest long-term earnings multiple, with a 2024 PE ratio of just 7.7. Morgan Stanley’s 12.6x 2024 earnings multiple is the highest in the group.

Benzinga’s Take: Investors should take 2024 EPS projections somewhat with a grain of salt given nobody on planet earth would have envisioned the position the economy would currently be in three years ago in 2018.

In the near-term, the biggest factors for bank stock investors to be monitoring are strength in the U.S. economy and the pace of Federal Reserve tightening as it progresses toward potential interest rate hikes in 2022 or 2023.