Saying that Citigroup and KeyCorp "could rise" by beating consensus first-quarter earnings estimates, and that "expectations may be a bit high, for Comerica (CMA), TCF Financial (TCB) and Wells Fargo (WFC), the analyst reiterated seven buy ratings and three hold ratings.
O'Connor also said that the 26% year-to-date return of the KBW Bank Index (I:BKX) versus a 12% return of the S&P 500 (SPX.X) is a "big move, banks are still down 9% since the Feb. 14, 2011 peak," and that although "the risk/reward is less compelling now vs. 3 months ago, we remain positive (albeit more selective)," with his "top picks" being JPMorgan Chase (JPM) and KeyCorp.
The analyst raised his price targets for the following three bank stocks with "Hold" ratings:For Bank of America (BAC), O'Connor raised his price target to $9.00 from $7.50. The company is scheduled to report its first-quarter results on April 19, and O'Connor estimates earnings of 20 cents a share, which is ahead of the 13-cent consensus among analysts polled by Thomson Reuters. Bank of America's shares have returned 72% year-to-date through Thursday's close at $9.53, following a 58% plunge during 2011. For the past 52 weeks, the shares have returned a negative 28%. O'Connor increased his price target for Comerica of Dallas to $29 from $25, saying the "Stock is up sharply this year (+26%), but there's little (if any) benefit to [the company's net interest margin] from [the] recent rise in long rates and mortgage warehouse [volume] could decline from here," which would reduce overall loan growth. O'Connor also "said that "actual buybacks may be less" than the $375 million share repurchase authorization the company announced on March 14. Comerica will also consider increasing its quarterly dividend from 10 cents to 15 cents, when its board of directors meets on April 24. Comerica's shares closed at $32.33. The company is set to report is first-quarter results on April 17. O'Connor estimates the company will report EPS of 53 cents, slightly behind the consensus estimate of 55 cents. For First Horizon National (FHN) of Memphis, Tenn., O'Connor raised his price target by a dollar to $9.50. The shares closed at $10.46 Thursday, returning 31%, following a 32% decline during 2011. O'Connor expects the company to post first-quarter EPS of 11 cents behind the consensus estimate of 13 cents. The following is a quick summary of the seven large-cap banks rated a "Buy" by O'Connor, and included in the analyst's first-quarter preview:
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