This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

2 Bank Stocks to Sell and 1 to Buy From Citigroup

Stocks in this article: BAC C KEY CMA NYB STI

NEW YORK ( TheStreet) -- Citigroup analyst Josh Levin on Thursday initiated or assumed his firm's coverage for 10 regional banks, with one "Buy" recommendation and two "Sell" calls.

The analyst is not enthusiastic about the group, saying that his coverage universe should trade at roughly book value, and that "given that our stocks are currently trading close to that valuation, we do not see much upside in most of our stocks at the current time."

The remarkable year-to-date bank stock rally, with the KBW Bank Index (I:BKX) rising 24% year-to-date through Wednesday's close at 49.90 -- following a 25% drop during 2011 - was largely driven by bargain hunting, with so many names trading below book value at the end of last year.

Two of the largest U.S. bank holding companies are still trading at very significant discounts to book value and at attractive price multiples to forward earnings estimates, despite stellar year-to-date returns:

  • Shares of Bank of America (BAC - Get Report) closed at $9.20 Wednesday, returning 66% year-to-date, following a plunge of 58% 2011. The shares still trade for just 0.7 times the company's Dec. 30 tangible book value of $12.95, and for nine times the consensus 2013 EPS estimate of $1.06, among analysts polled by Thomson Reuters. The consensus first-quarter EPS estimate for BAC is 12 cents, with a full-year 2012 estimate of 69 cents.
  • Citigroup (C - Get Report) closed at $35.04 Wednesday, returning 33% year-to-date, following last year's 44% decline. Citi's shares are also heavily discounted, at just 0.7 times the Dec. 30 tangible book value of $49.81. The shares trade for eight times the consensus 2013 EPS estimate of $4.70. Analysts expect the company to post first-quarter EPS of 96 cents, and EPS of $4.07 for all of 2012.

Levin said that Citigroup's analysis suggested "that total loan growth on banks' balance sheets should remain anemic," but that commercial and industrial loans "have the best prospects for growth over the next one to two years."

The analyst added that "absent a rise in interest rates, regional banks are running out of tools to defend or grow their net interest margins ," and projected among the regional banks he covers, "median NIM compression of ~7 bps in '12 followed by ~7 bps of NIM expansion in '13."

Levin also addressed the continual cost-cutting chatter from bank executives with skepticism, saying "our analysis suggests that, absent shrinking the size and scope of their operations, banks do no have much room left in the way of non-credit cost reductions."

Among the regionals with neutral ratings from Citi, Levin named SunTrust (STI) of Atlanta, as "one of the first names we would look to go long on a pull back," saying that "although we do not think it has enough upside at its current valuation to warrant a Buy rating, we think STI has more upside than most other names," because of a 33% discount on a price-to-book and price-to-earnings basis when compared to its peer group."

Levin also said that SunTrust "may enjoy both upward EPS revisions and multiple expansion in the quarters ahead."

Here are the three banks for which Levin initiated or took over coverage with "Buy" or "Sell" ratings, starting with the "Buy:"

1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,390.32 -288.38 -1.63%
S&P 500 2,033.03 -24.06 -1.17%
NASDAQ 4,696.9260 -74.8370 -1.57%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs