Deutsche Bank upgraded Goldman Sachs (GS) to Buy from Hold and raised its price target on many other bank stocks, saying that their shares may have adjusted upward for expectations of rising rates but may not be fully pricing in the strengthening economy.
OVERALL OUTLOOK: Banks should benefit from strong economic growth, higher interest rates and lower tax rates, wrote Deutsche Bank analyst Matt O’Connor. Stronger economic growth should cause banks’ loan growth and fee revenues to accelerate, but these positive catalysts “may not be” reflected in bank stocks in the way that the anticipation of rising interest rates has already been, O’Connor contended.
GOLDMAN SACHS: Goldman’s potential revenue growth, “good cost control” and below peer valuation leave it looking “well-positioned for a stronger macro environment,” according to O’Connor. Meanwhile, Goldman’s capital market businesses, as well as its lending operations, should benefit from a strengthening economy, added the analyst. He raised his price target on the shares to $255 from $180 in addition to upgrading the shares.
WELLS FARGO, HUNTINGTON: Despite rising over 20%, Huntington still trades significantly below its peer average, likely due to concerns about its indirect consumer auto loans and worries about its acquisition of FirstMerit, O’Connor stated. However, if the economy accelerates, its auto loans should be “fine,” and investors’ concerns about the acquisition will probably dissipate “over the next quarter or two” as cost savings kick in, the analyst stated. Wells Fargo is trading 14% below its large regional peers on continued worries about its cross selling activities and related areas, the analyst stated. The discount should decline as regulatory and legal issues will probably get solved, O’Connor believes. He identified Huntington and Wells Fargo as his favorite regional bank stocks and kept Buy ratings on both names. O’Connor increased his price target on Huntington to $15 from $12 and raised his price target on Wells to $60 from $49.
