Updated with final stock price moves throughout
NEW YORK (
was among the winners of the financial sector Thursday after an analyst hiked his stock price target for the bank by 45% to reflect a new method of valuing bank stocks.
JPMorgan shares finished up 31 cents, or 0.7%, at $44.96 after Rochdale Securities analyst Dick Bove upped his price target to $58 from $40, reiterating his buy on the bank's stock. Bove said the increased
reflects valuing bank stocks on pretax, pre-provision earnings, which he says is more appropriate as it "captures the potential rise in earnings in an expanding economy."
"Since not all of pretax, provision earnings will show up as reported earnings, a multiple of 7 on these projections may be appropriate. This would value J.P. Morgan at $58 per share," Bove wrote in a research note. "Thus, even though the near-term fundamentals of this company have not improved its earnings are now being valued at much higher rates."
was also the subject of a separate research note by Bove. He raised his stock price target for the bank to $5 from $4, citing comments by Citi CEO Vikram Pandit that dispelled some of the recent news articles suggesting that the bank would sell as many as 9 billion shares in the next few months.
On Tuesday, news reports surfaced that Citigroup was working on a plan to reduce the U.S. government's 34% stake, which included a possible multibillion-dollar stock sale. Later in the day, Citigroup raised $5 billion in debt guaranteed by the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program, or TLGP, through the sale of bonds with two and three-year maturities, according to reports.
"The key risk in the capital story is that should the bank wish to redeem its TARP preferreds, it would have to prove that it could raise capital on its own in the open market," Bove wrote. "This would mean that the bank would have to do a capital offering before it could redeem its preferreds. The positive/negative is that the bank just raised another $5 billion with FDIC backing suggesting that it is not yet ready to raise money on its own in the open market."
Citigroup shares gained 22 cents, or 5.2%, to close at $4.42.
Bove didn't stop with JPMorgan and Citi, though, as he upgraded
to buy from neutral and raised his stock price target to $28 from $25. Bove said that
is "charged up" and has found a business opportunity and he intends to take advantage of it.
"Competitors are weakening as they deal with loan problems," Bove wrote. "This is creating a vacuum in the market allowing banks with bold programs to grab market share." In addition, U.S. Bancorp's Davis is hiring in areas where he envisions growth, he is willing to consider acquisitions, and has a belief that the bank has a stronger capital position than its peers and better debt ratings, Bove wrote.
Bove adds that U.S. Bancorp faces three challenges to its approach, as the markets the company serves are not strong, the ability to raise margins is being constrained by the low interest rate environment and, lastly, there is the continued growth in non-performing assets and the increase in loan loss write-offs. "This suggests that the loan loss provision at the bank will remain very high for some time," Bove wrote.
Despite the upgrade, U.S. Bancorp shares slipped 38 cents, or 1.7%, to end the day at $22.44.
Most other bank stocks finished in positive territory Thursday.
shares advanced 3% to $31.05,
Bank of America
climbed 2.1% to $17.61 and
rose 0.9% to $181.46.
On the other hand,
shed 63 cents, or 2.1%, to close at $28.78.
United Western Bancorp
also traded to the downside. Synovus said it priced its public offering of 150 million shares at $4 a share, driving its stock down 53 cents, or 12%, to $3.90.
United Western, meanwhile, fell 54 cents, or 12.6%, to finish at $3.76 after the bank late Wednesday announced it had priced its 20 million share stock offering $4 a share.
On the earnings front,
reported third-quarter earnings of $577 million, or $1.07 a share, which included an after-tax gain of $287 million related to an antitrust litigation settlement with
Discover said its managed net charge-off rate increased to 8.39% in the third quarter, up from both the prior year and sequential quarter. The managed net charge-off rate for the fourth quarter is expected to be between 8.5% and 9%, the company said. Meanwhile, loan loss provisions rose by $170 million, or 23%, from the prior year due to higher net charge-offs.
Discover shares rose 20 cents, or 1.3%, to $15.52. Among other credit-card issuers,
slid 2.3% to $35 and
Capital One Financial
dove 2.4% to $38.05.
-- Written by Robert Holmes in New York