Updated to include link to bank stocks analysts love least.
NEW YORK (
) -- Which bank stocks do the analysts like best? There is one ranking system to give you the answer.
assigns stocks a number from one to five based on each analyst's recommendation, then calculates the average to show how Wall Street analysts as a group rate a particular stock. A rating of five would mean every analyst that covers the stock loves it, while a rating of one means every analyst hates the stock.
took a look at the 19 bank stocks in the S&P 500 to see how analysts rate them. Keep in mind that analysts may recommend a stock even if they think a bank is badly run, poor growth prospects, or a bunch of bad loans sitting on its books that it isn't owning up to, as long as it's cheap enough.
Also remember that analysts tend to be bullish as a group, mostly because they are afraid putting a "sell" on a stock may cause management to shut them out of the information loop. That may explain why the lowest-rated stock in the S&P 500,
Marshall & Ilsley
, has a seemingly respectable score of 2.78.
Here are the
. Also, be sure and take a look at the
Consensus recommendation: 4.03
The fourth largest U.S. bank by assets and the second-largest by market cap, Wells Fargo is still rehabilitating the portfolio of bad mortgage loans it acquired from Wachovia in the depths of the financial crisis.
In a May 6 report, Stifel Nicolaus analyst Chris Mutascio argued "concerns over falling mortgage banking revenues at WFC appear to be well overdone and firmly priced into the shares' valuation." Mutascio has a "buy" on Wells Fargo and a $42 target price.
Sterne Agee's Todd Hagerman has a "neutral" on Wells and a $35 price target. He wrote in an April 21 report that Wells Fargo "continues to post steadily improving credit statistics, including lower mortgage delinquency levels and lower problem asset inflows," he also cites declines in mortgage repurchase requests."
Still, he writes, "market-sensitive revenues are beginning to slow, exacerbated by mounting pressure tied to ongoing regulatory changes. And while WFC has a fair amount of expense leverage in the coming quarters as the mortgage unit is rationalized and integration costs subside, headline risk attached to the legacy mortgage/servicer operations and lackluster loan growth prospects will likely keep
Wells Fargo's multiple in check."
Fifth Third Bancorp
Fifth Third Bancorp is a $110 billion financial services company headquartered in Cincinnati. The institution operates 1,310 banking centers in Ohio, Indiana, Kentucky, Michigan, Illinois, Florida, West Virginia, Missouri, Tennessee, Georgia, Pennsylvania, and North Carolina.
Fifth Third's first quarter earnings were in line with analyst basically met estimates on "lower credit costs and expenses than we had forecast," according to an April 25 report by Sandler O'Neill analyst Scott Siefers. Still, Siefers wrote that "pre-provision earnings were a little light." He argued Fifth Third's management appeared "optimistic that revenue trends will gain some steam as the year progresses," driven by stronger loan growth and higher net interest margins.
"While we await these improved trends, the credit story continues to play out, and we expect lowerprovision levels to drive earnings higher in coming quarters," Siefers writes. He believes Fifth Third's "capital situation remains very strong," noting the bank's tangible common equity ratio of 8.6%.
Citigroup is the only one of the four U.S. megabanks that has grown revenues over the past year, according to
data. Still, Sanford Bernstein analyst John McDonald wrote Friday that he expects revenues and pre-provision earnings to "remain under pressure," due to continued low interest rates, the winding down of "non-core," loan portfolios, "tepid capital markets," and regulatory pressures. Nonetheless, McDonald is bullish on Citigroup's stock, arguing its extensive exposure to emerging markets relative to big bank peers makes it a compelling growth story.
Deutsche Bank was also very positive on the stock in a May 18 note following s meeting with the bank's CFO, John Gerspach. Analyst Matt O'Connor reiterated his "buy" recommendation and $55 price target, arguing that "near term, the stock should benefit from continued progress from de-risking the balancesheet, fewer mortgage hits/headline risk, and potentially, a better 2H11 revenue outlook than some expect (as investments in Asia and Latin America begin to pay off). "
PNC's first quarter earnings of $1.57 beat analyst estimates of $1.38. FBR Capital Markets analyst Paul Miller, who has an "outperform" on the stock and an $80 price target called it "a solid quarter from PNC given the company's ability to still generate a strong earnings number even though loan demand remains slow, mortgage banking activity had its worst quarter in the last year, and the company reduced its stake in
Miller stated in his report that "the decent operating result was driven by a slowing of repurchase-related reserving, employee incentive declines, and...a reversal of a liability from lawsuit."
Miller argues PNC is in a good position from a capital perspective to buy back stock or make acquisitions.
"Taking into account this quarter's lower day count and seasonally lower top-line revenue, PNC proved it can report solid core earnings while other banks are reporting moderating mortgage banking fees, card revenue, and pressure on interest income," Miller wrote.
JPMorgan shares have barely posted positive returns this year despite the fact that the bank has posted market share gains in fixed income currencies and commodities trading and its credit card business, according to a recent report from Deutsche Bank's O'Connor, who has a "buy" on the stock and a $55 price target.
On the negative side. O'Connor believes litigation and other "mortgage-related hits," will likely continue to weigh on earnings. Citing management comments, he says it could linger for another 12 to 24 months.
JPMorgan has indicated a willingness to make acquisitions, though it is not clear how much larger regulators would be willing to let the bank get, at least in the U.S. It has authorization to buy back up to $8 billion in stock, according to the Federal Reserve, and will buy back at least $3 billion of that, according to management comments following first quarter earnings.
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Written by Dan Freed in New York
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.