- Wells Fargo (WFC - Get Report), with a price target of $41, implying 23% upside from Thursday's closing price of $33.26. Juneja lowered his price target for Wells Fargo by a dollar, "reflecting our modestly lower earnings forecast" of $3.65 for 2013. The analyst estimates the company will earn $3.95 a share in 2014.
- U.S. Bancorp (USB - Get Report), with a price target of $39.50, implying 25% upside from Thursday's closing price of $31.54. Juneja lowered the price target from $41, to reflect "lower EPS estimates and based on a P/E multiple of 11.8x versus the peer group multiple of 10.3x." U.S. Bancorp's premium valuation reflects its very strong earnings performance relative to other large-cap U.S. banks, with operating returns on average assets (ROA) ranging from 1.58% to 1.71% over the past five quarters, according to Thomson Reuters Bank Insight.
- SunTrust (STI - Get Report), with a price target of $32.50, implying 19% upside from Thursday's closing price of $27.20. The analyst cut his price target by a dollar, "reflecting our lower EPS estimates and based on 1.2x our YE 2013 tangible book value versus the peer group multiple of 1.5x because of its lower profitability level."
- PNC Financial Services Group (PNC), with a price target of $72.50, implying 28% upside from Thursday's closing price of $56.54. Juneja lowered his price target for PNC from $80, because of a "lower earnings forecast due to increased pressure on net interest margins."
Discounts to Book Value
Of the nine large-cap universal and regional banks covered in Juneja's report, only three were still trading at discounts to tangible book value, including Bank of America, at 0.8 times their reported Sept. 30 tangible book value of $13.48; Citigroup, at 0.7 times their reported tangible book value of $52.70; and with KeyCorp (KEY), at 0.9 times their reported tangible book value of $9.54, based on Thursday's closing price of $8.14. Even though he is expecting Bank of America's shares to return 23% over the next year, Juneja estimates the shares will still trade for just 0.9 times tangible book value at the end of 2013, or a "40% discount to expected peer median tangible book value multiple of 1.5x." The analyst expects "BAC to trade at a discount near term due to continued headline risk and some pressure on revenues."
The Margin Squeeze
Among the nine large-cap banks covered in Juneja's report, the analyst expects all except Bank of America to see at least a modest decline in net interest margin during 2013.