By Philip van Doorn, MarketWatch
Shanahan actually has “buy” ratings on Bank of America and J.P. Morgan. He believes J.P. Morgan’s current premium valuation is justified because of “consistently stronger revenue and earnings growth, and industry-leading profitability,” he wrote in an Oct. 15 report. But the following day, he wrote that Bank of America’s price-to-tangible-book-value ratio of 1.6 was “unwarranted” because of its “strengthened financial condition and improved profitability.”
Wall Street’s view
Here’s a summary of opinion of the Big Four among analysts polled by FactSet:
|Bank||Ticker||share 'buy' ratings||Share neutral ratings||Share 'sell' ratings||Closing price - Oct. 16||Consensus price target||Implied 12-month upside potential|
|Bank of America Corp.||/zigman2/quotes/200894270/composite BAC||54%||46%||0%||$30.17||$33.07||10%|
|J.P. Morgan Chase & Co.||/zigman2/quotes/205971034/composite JPM||44%||56%||0%||$119.68||$122.50||2%|
|Citigroup Inc.||/zigman2/quotes/207741460/composite C||83%||13%||4%||$69.50||$81.75||18%|
|Wells Fargo & Co.||/zigman2/quotes/203790192/composite WFC||19%||70%||11%||$49.59||$49.70||0%|
Bank of American and Citigroup have majority “buy” ratings, with Citi the current favorite among analysts as a remedial play on its low valuation (see the first table above).
All four can also be seen as dividend plays. Here are current yields along with how much each company raised its dividend after annual capital plans were approved by the Federal Reserve earlier this year:
|Bank||Ticker||Dividend yield||Most recent increase in quarterly dividend payout|
|Bank of America Corp.||BAC||2.39%||20.0%|
|J.P. Morgan Chase & Co.||JPM||3.01%||12.5%|
|Wells Fargo & Co.||WFC||4.11%||5.0%|
Economic outlook — a bright spot in third-quarter numbers
An interesting common theme Shanahan has observed this earnings season is continued strength in credit quality, particularly for U.S. consumers. Credit-card delinquencies typically increase during back-to-school shopping season, with non-performing card loans increasing through the holiday season, he said.
But despite some slowing of economic growth indicated by recent reports, third-quarter consumer-loan delinquencies “do not even reflect [normal] seasonal trends,” Shanahan said.
That is a big surprise and may point to better-than-expected strength for American consumers for some time.
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