7 Bank Stock Earnings Picks From Deutsche Bank

NEW YORK ( TheStreet) -- Deutsche Bank analyst Matt O'Connor on Friday raised his price targets for seven large bank holding companies heading into first-quarter earnings season.

Saying that Citigroup and KeyCorp "could rise" by beating consensus first-quarter earnings estimates, and that "expectations may be a bit high, for Comerica ( CMA), TCF Financial ( TCB) and Wells Fargo ( WFC), the analyst reiterated seven buy ratings and three hold ratings.

O'Connor also said that the 26% year-to-date return of the KBW Bank Index ( I:BKX) versus a 12% return of the S&P 500 ( SPX.X) is a "big move, banks are still down 9% since the Feb. 14, 2011 peak," and that although "the risk/reward is less compelling now vs. 3 months ago, we remain positive (albeit more selective)," with his "top picks" being JPMorgan Chase ( JPM) and KeyCorp.

The analyst raised his price targets for the following three bank stocks with "Hold" ratings:

For Bank of America ( BAC), O'Connor raised his price target to $9.00 from $7.50. The company is scheduled to report its first-quarter results on April 19, and O'Connor estimates earnings of 20 cents a share, which is ahead of the 13-cent consensus among analysts polled by Thomson Reuters. Bank of America's shares have returned 72% year-to-date through Thursday's close at $9.53, following a 58% plunge during 2011. For the past 52 weeks, the shares have returned a negative 28%.

O'Connor increased his price target for Comerica of Dallas to $29 from $25, saying the "Stock is up sharply this year (+26%), but there's little (if any) benefit to the company's net interest margin from the recent rise in long rates and mortgage warehouse volume could decline from here," which would reduce overall loan growth. O'Connor also "said that "actual buybacks may be less" than the $375 million share repurchase authorization the company announced on March 14. Comerica will also consider increasing its quarterly dividend from 10 cents to 15 cents, when its board of directors meets on April 24.

Comerica's shares closed at $32.33. The company is set to report is first-quarter results on April 17. O'Connor estimates the company will report EPS of 53 cents, slightly behind the consensus estimate of 55 cents.

For First Horizon National ( FHN) of Memphis, Tenn., O'Connor raised his price target by a dollar to $9.50. The shares closed at $10.46 Thursday, returning 31%, following a 32% decline during 2011. O'Connor expects the company to post first-quarter EPS of 11 cents behind the consensus estimate of 13 cents.

The following is a quick summary of the seven large-cap banks rated a "Buy" by O'Connor, and included in the analyst's first-quarter preview:

BB&T
Shares of BB&T ( BBT) of Winston-Salem, N.C., closed at $31.47 Thursday, returning 26% year-to-date, following a 2% decline during 2011.

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The shares trade for 2.1 times tangible book value, according to HighlineFI, and for 11 times the consensus 2013 EPS estimate of $2.96.

Following the completion of the Federal Reserve's 2012 bank holding company stress tests, BB&T on March 13 increased its quarterly dividend by four cents to 20 cents, and also said the Fed didn't object to the company's "plans to redeem $3.2 billion of trust preferred securities beginning in 2012 without issuing any replacement capital."

Also on March 13, BB&T modified its deal to acquire BankAtlantic Bancorp's ( BBX) thrift subsidiary, agreeing to pay a premium of up to $316 million to acquire 78 South Florida branches, and $3.3 billion in deposits, while also agreeing to "assume BankAtlantic Bancorp's obligations with respect to its outstanding trust preferred securities, with an aggregate principal balance of approximately $285 million."

The company is scheduled to announce its first-quarter results on April 19. O'Connor estimates that BB&T will report EPS of 60 cents, which is above the consensus EPS estimate of 56 cents. One bright spot he sees for the first quarter is continued credit quality improvement, with a $1000 million first-quarter release of loan loss reserves, padding the bottom line.

The analyst on Friday raised his price target for BB&T to $32 from $30.

Interested in more on BB&T? See TheStreet Ratings' report card for this stock.

Citigroup
Shares of Citigroup closed at $36.51 Thursday, returning 39% year-to-date, following a 44% drop during 2011.

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The shares trade for 0.7 times tangible book value, and for eight times the consensus 2013 EPS estimate of $4.78.

After its 2012 capital plan -- which included a dividend increase and share buybacks -- was rejected by the Fed, Citigroup on March 13 said that "in light of the Federal Reserve's actions, Citi will submit a revised Capital Plan to the Federal Reserve later this year, as required by the applicable regulations."

O'Connor on Friday raised his price target for Citi to $40 from $36.

Citigroup will report its first-quarter results on April 16. O'Connor estimates the company will report EPS of $1.19, which is far ahead of the consensus EPS estimate of a dollar, as the analyst expects that "upside vs. consensus is likely given the rebound in capital markets," especially in trading revenue.

Expect another lumpy quarter for Citigroup, which, according to O'Connor, will "include the impacts from a number of previously-disclosed sales of equity stakes, including: a $1.1b pre-tax gain from the sale of HDFC ($722m after-tax), a $349m after-tax gain from the sale of Shanghai Pudong Development Bank, and a $1.1b pre-tax impairment charge ($700m after-tax) from C's plans to reduce its Akbank stake by 50%."

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

JPMorgan Chase
Shares of JPMorgan Chase closed at 45.67 Thursday, returning 38% year-to-date, following a 20% decline during 2011.

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The shares trade for 1.5 times tangible book value, and for eight times the consensus 2013 EPS estimate of $5.52.

JPMorgan announced an increase of its quarterly dividend to 30 cents from 25 cents, and the authorization of $15 billion in share buybacks, including $12 billion this year, and another $3 billion authorized for the first quarter of 2013.

O'Connor on Friday raised his price target for the shares by $5 to $50.

The company will report its first-quarter results on April 13, and O'Conner estimates JPM will report EPS of $1.19, behind the consensus estimate of $1.28.

Following the company's Investor Day presentations late last month, O'Connor said that JPMorgan Chase "should do well in good times" with annual earnings approaching $6.50 a share, after moving beyond 'mortgage-related hits."

For the first quarter, O'Connor expects "a solid rebound in overall revenue excluding credit and debit valuation adjustments, driven by a meaningful pick up in capital market revenues (particularly within FICC trading), as well as higher mortgage and asset management revenues."

Interested in more on JPMorgan Chase? See TheStreet Ratings' report card for this stock.

Regions Financial
Shares of Regions Financial ( RF) of Birmingham, Ala., closed at $6.52 Thursday, for a year-to-date return of 52%, following a 38% decline during 2011.

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The shares trade for nine times the consensus 2013 EPS estimate of 75 cents.

The company owes $3.5 billion in federal bailout funds received in November 2008, through the Troubled Assets Relief Program, or TARP. Following the completion of the Federal Reserve's annual stress tests last week, Regions announced it had commenced a $900 million common stock offering, and said that including the offering's net proceeds of $875 million, the money from the Morgan Keegan sale and a full redemption of TARP preferred shares held by the U.S Treasury, the company's Tier 1 common equity ratio, based on Dec. 30 numbers, would be a strong 9.51%.

Regions expects to complete its TARP repayment during April.

The company will report its first-quarter results on April 24. O'Connor estimates the company will report first-quarter earnings of seven cents a share, matching the consensus.

The analyst on Friday raised his price target for Regions by a dollar, to $7.50.

O'Connor's first-quarter outlook for Regions "reflects lower net interest income given lower earning assets (continued run-off of RF's investor real estate and home equity portfolios) and higher mortgage prepayments in the securities book. However, offsets to these net interest margin headwinds are opportunities lower funding costs, reduce excess cash levels and continued pricing discipline on loans."

Interested in more on Regions Financial? See TheStreet Ratings' report card for this stock.

TCF Financial
Shares of TCF Financial of Wayzata, Minn., closed at closed at $12.07 Thursday, returning 18% year-to-date, following a 29% decline during 2011.

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The shares trade for 1.2 times tangible book value and for 10 times the consensus 2013 EPS estimate of $1.23.

TCF on March 13 announced it would prepay $3.6 billion in wholesale borrowings and sell $1.9 billion in mortgage-backed securities, as part of its strategy of moving away from longer-term residential and commercial real estate loans and MBS investments, to a focus on "originating high-yielding, low-risk, secured loans and leases funded by a low-cost, core deposit base," according to CEO William Cooper.

The company said it would recognize "a one-time, net after-tax charge of $293 million, or a loss of $1.85 per common share, recorded in the first quarter of 2012."

TCF said it had "replaced $2.1 billion of 4 percent weighted average fixed-rate, Federal Home Loan Bank advances with a mix of floating and fixed-rate borrowings with a current rate of .5 percent," while terminating "$1.5 billion of 4 percent weighted average fixed-rate repurchase agreement borrowings." The company expects its net interest income to improve by $74 million, annualized, and for its net interest margin to increase by 96 basis points.

Following that major announcement, O'Connor on March 13 reiterate his "Buy" rating for TCF, and said that the move would help "the market focus on TCB's good underlying EPS."

The company will announce its earnings results on April 19. O'Connor expects a first-quarter loss of $1.80.

The analyst on Friday left his price target for TCF Financial unchanged at $13.00.

Interested in more on TCF Financial? See TheStreet Ratings' report card for this stock.

Wells Fargo
Shares of Wells Fargo closed at 33.94 Thursday, returning 24% year-to-date, following a 10% decline during 2011.

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The shares trade for 2.2 times tangible book value and for nine times the consensus 2013 EPS estimate of $3.71.

Wells Fargo on March 14 raised its quarterly dividend to 22 cents from 12 cents, for a yield of 2.59%, based on Thursday's close.

The company also said the Federal Reserve hadn't objected to a plan to increase its share buybacks from last year, when the company bought back 26.6 million shares, and under its buyback program was authorized to repurchase another 117.3 million shares, as of Dec. 30.

Wells Fargo will report its first-quarter results on April 13. O'Connor estimates the company will post first-quarter EPS of 75 cents, slightly ahead of the 75-cent consensus estimate, saying on Friday that "expectations may be high heading into 1Q, with strong mortgage results likely priced in," and that the first-quarter net interest margin may be weak, with high expenses.

"But looking beyond 1Q," O'Connor expects the net interest margin to benefit by about five basis points "from loan deals, trust preferred share reduction and higher long rates." The analyst then sees expenses coming "down a lot" beginning in the second quarter.

O'Connor on Friday left his price target for Wells Fargo unchanged at $36.00.

Interested in more on Wells Fargo? See TheStreet Ratings' report card for this stock.

KeyCorp
Shares of KeyCorp of Cleveland closed at

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The shares trade for 0.9 times tangible book value, and for 10 times the consensus 2013 EPS estimate of 81 cents.

KeyCorp on March 14 announced that the Federal Reserve had approved its plan to increase its quarterly dividend to five cents from three cents, and announced that its board of directors would "consider the potential dividend increase at its regular May meeting."

KeyCorp also announced that it had authorized "a common stock repurchase program of up to $344 million."

The company is set to announce its first-quarter results on April 19. O'Connor estimates the company will report EPS of 21 cents, ahead of the consensus estimate of 19 cents.

O'Connor sees KeyCorp as "likely among the few banks to grow net interest income this quarter, given higher net interest margin expansion and loan growth."

The analyst on Friday left his price target for the shares unchanged, at $9.00.

O'Connor said that "the main focus this quarter will be how the market receives an increase in net interest income (a positive, especially when it's declining at several peers) and a rise in the provision expense (given less meaningful reserve release).

Interested in more on KeyCorp? See TheStreet Ratings' report card for this stock.

>>To see these stocks in action, visit the 7 Bank Stock Earnings Picks From Deutsche Bank portfolio on Stockpickr.

-- Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here: Philip van Doorn.

To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

To submit a news tip, send an email to: tips@thestreet.com.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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