10 Financial Stocks With Upside: Analysts

NEW YORK (TheStreet) -- JPMorgan Chase (JPM), Mitsubishi UFJ Financial (MTU), Citigroup (C), Banco Santander (BSBR), Bank of America (BAC), Nomura Holdings (NMR), Mizuho Financial Group (MFG), Lloyds Banking Group (LYG), Sumitomo Mitsui Financial (SMFG), Barclays Plc (BCS) and JPMorgan Chase (JPM) have upside potential of 27% to 70%, based on analysts' consensus estimates of 12-month price targets.

We have identified banking and financial services (BFSI) stocks panning the U.S., Brazil, Japan, and the U.K. with a minimum market capitalization of $18 billion.

These stocks are expected to gain up to 70% over the next 12 months with a mean upside value of 43%, according to analysts polled by Bloomberg.

In comparison, other stocks such as HSBC ( HBC), HDBC Bank ( VOD), The Western Union Company ( WU), American Express Company ( AXP) and China Life Insurance ( LFC) are expected to return 10% to 20%.

10. JPMorgan Chase ( JPM) is a global financial services firm with businesses such as commercial banking, investment banking, asset management, and private equity.

The company reported 2011 first quarter net income of $5.6 billion, significantly higher than $3.3 billion achieved in the first quarter of 2010. The company's investment banking and retail financial services segments fared well, recording net profit growth of 58% year-over-year.

The company strengthened its balance sheet. Jamie Dimon, the company's CEO said, "We strengthened our fortress balance sheet, ending the first quarter with a strong Tier 1 Common ratio of 10%. Looking forward, we intend to operate the business with the objectives of maintaining a Basel I Tier 1 Common ratio of at least 9% and meeting the Basel III requirements substantially ahead of time. Our earnings power will allow us to generate significant capital in excess of our objectives, enabling us to invest aggressively in our future."

The stock is trading at 8.9 times its estimated 2011 earnings and analysts expect the stock to gain 27% in the next one year.

9. Citigroup ( C) is a diversified, international financial services conglomerate.

For 2011 first quarter, Citigroup reported revenue of $19.7 billion, narrowing 22% from 2010 first quarter. Net interest revenue was $12.2 billion, 16% lower than the prior year period, largely attributable to declining loan balances in local consumer lending.

Net credit losses were $6.3 billion, sliding 25% from 2010 first quarter. Consumer net credit losses dropped 32% to $5.4 billion, driven by continued improvement in credit cards and residential real estate lending. As a sign of improving credit quality, Citigroup's total allowance for loan losses at the end of March was $37 billion or 5.8% of total loans, down from $49 billion or 6.8% in the same period last year.

Net income reported for first quarter 2011 was $3 billion -- declining from $4.4 billion in the first quarter of 2010 but doubling sequentially. The stock is trading at 10.6 times its estimated 2010 earnings with a potential upside of 27% in the next one year.

8. Mitsubishi UFJ Financial ( MTU) is a holding company for financial institutions like the Bank of Tokyo-Mitsubishi UFJ, Mitsubishi UFJ Trust and Banking Corporation, Mitsubishi UFJ Securities Holdings, Mitsubishi UFJ Morgan Stanley Securities and Mitsubishi UFJ NICOS. It is a leading financial group with total assets worth more than $2.5 trillion. The bank's services include commercial banking, trust banking, securities, credit cards, consumer finance, asset management, and leasing.

Net income benefited from various cost rationalization measures the bank implemented. Profits from the global markets segment grew faster, while lower interest rates impacted the retail and overseas corporate segments. During third quarter of fiscal 2011, gross profit improved following gains made on sale of debt securities. Lower interest rates and the decrease in loan balance piled pressure on net interest income.

The Group expects to focus on the Asian and North American markets with a retail-backed strategy, going ahead. The Group's capital ratio stood at 15.24%, while Tier-1 was a robust 11.74%. Analysts expect the stock to deliver 32% over the next one year.

7. Banco Santander ( BSBR) is a full-service bank in Brazil operating in the commercial banking, global wholesale banking and asset management, and insurance sectors.

The bank's net profit grew 34% in the fourth quarter of 2010 from the same period last year. The efficiency ratio was 34.8% in 2010, improving 1.5% year-over-year as net interest income increased 8.7% in this period.

Until Dec. 2010 end, the bank's credit book grew 16% compared to the same period last year, fortified by the strong growth seen in segments like retail and small medium enterprises (SMEs). During the last one year, the retail segment grew 18%, while SMEs consolidated 22% -- both segments account for close to two-thirds of the loan book.

The bank's nonperforming loans stood at 4.7% in the fourth quarter, narrowing 2.1% year-over-year and 30 basis points compared to September quarter. The loan loss coverage stood at 98%. The stock is trading at 11.2 times its estimated 2011 earnings will likely deliver 32% over the next one year.

6. Nomura Holdings ( NMR) is a financial services company operating in Japan and the international markets. The company operates in three divisions: retail, wholesale and asset management.

Net revenue for the third quarter was $3.6 billion, increasing 7% from the second quarter and 8% in the comparable quarter last year. Net income grew 13 times sequentially and 31% year-over-year to $165 million from the previous quarter. Income before tax was $340 million, up 30% from the prior quarter and 55% year-over-year.

Commenting on the bank's financial performance, Kenichi Watanabe, Nomura's President and CEO, said, "Our retail division increased client assets, while asset management generated higher revenues on a rise in assets under management. Wholesale gained further momentum with robust client activities in Global Markets and an increasingly diverse revenue mix as our US franchise gained traction. Cross-divisional partnership between Investment Banking and Global Markets led to a number of high-profile deals."

Nomura's capital ratios are the highest in the industry - total capital ratio was 24.9% and Tier-1 ratio was 17.3%, as of Dec. 2010. The stock is expected to deliver 43% in the next one year.

5. Bank of America ( BAC) is one of the world's largest financial conglomerates, offering a range of services that include banking, investment, asset management, and financial and risk management products and services.

The bank reported net income of $2 billion for the first quarter of 2011, compared to $3.2 billion in the year-earlier period and net loss of $1.2 billion in 2010 fourth quarter. Higher net income resulted from lower credit costs, higher fee income, and investment gains.

Credit quality improved in the first quarter of 2011, with net write-offs declining across most portfolios compared to the first quarter of 2010. The bank's loan book expanded $101 billion in the first quarter of 2011-- the third quarter of consecutive loan growth -- while deposits grew 5%.

The stock is trading at 11.4 times its estimated 2011 earnings and is expected to deliver 43% return in the next one year.

4. Mizuho Financial Group ( MFG), operating through its subsidiaries, provides various banking and financial services in Japan and the international markets. The company offers retail-banking services including housing and personal loans, credit cards, deposits, investment products, and consulting services.

Consolidated gross profit for the nine-month period ended Dec. 2010 rose 5% year-over-year, aided by trading gains and the emergence of a customer group segment, both domestic and overseas, arising mainly from non-interest income.

During the first nine months of fiscal 2011, the company strengthened its capital base by plowing back profit and through issuance of common stock in the first half of fiscal 2010. The company's medium-term target is to take its Tier-1 capital ratio to 12% and capital ratio to 8%.

Analysts expect the stock to return 57% in the next one year.

3. Sumitomo Mitsui Financial ( SMFG) provides various consumer, commercial, corporate banking, and other financial services in Japan.

During third quarter of 2010, ordinary profit and net income increased 85% and 95%, respectively, on substantial trading gains.

The company is targeting to gain traction in overseas markets, especially Asia. It has opened a branch each in China and India. The bank has an alliance with RHB Bank of Malaysia, and supports local banks in Japan for their corporate customers' overseas business. The company intends to focus on the wholesale and retail businesses in the future.

The bank is targeting 10% of consolidated ROE in the medium term and intends to maintain over 10% of consolidated Tier-1 ratio. In the earnings forecast for fiscal 2011, the management guides 56% in ordinary profit and 99% in net profit. The stock could deliver up to 64% in the next one year.

2. Barclays Plc ( BCS) is a London-based financial services provider engaged in the retail, corporate, and investment banking services.

During the Dec. 2010 quarter, total loans and advances expanded 12% from the Sep. quarter, indicating higher growth in mortgage loans.

Net income amplified 22% year-over-year in 2010, while profit before tax and profit after tax rose 32% and 30%, respectively.

Impairment charges represented 70 basis points (bps) of total gross loans and advances, compared to 98 bps in 2009. Impairment losses in Spain corresponded to 15% of total impairment charges and weighed heavy on the company's overall earnings

Barclay's core Tier-1 ratio was 10.8%, exceeding the mandated requirement. The stock trading at 8.1 times its estimated 2011 earnings and analysts expect it to gain 69% in the next one year.

1. Lloyds Banking Group ( LYG) is a U.K.-based financial services company operating in the retail, wholesale, international banking, and insurance segments.

Total income was flat in 2010, while net earnings experienced a turnaround. Net profit stood at $3.6 billion against a net loss of $10.3 billion in 2009. The bank's cost-to-income ratio improved to 46.6% from 48.4% in 2009, narrowing 220 basis points.

New lending subdued during 2010, although gross mortgage lending increased. Loans, advances, and customer deposits declined marginally in 2010, compared to 2009.

Though higher funding costs piled pressure, prudent lending improved net interest margin to 2.1% from 1.77% in 2009. The management expects modest margin expansion for the second half of 2011. On average, analysts expect the stock to gain 70% over the next one year.

>>To see these stocks in action, visit the 10 Financial Stocks With Upside portfolio on Stockpickr.

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