3 Bank Stocks With Bigger Price Targets From KBW (Update 1)

Updated with the Federal Reserve's announcement that Morgan Stanley entered into a consent order, to provide remediation to mortgage borrowers.

NEW YORK ( TheStreet) -- While raising price targets for three of the biggest U.S. banks, KBW analyst David Konrad on late on Monday said that "some profit-taking in the group is recommended" after JPMorgan Chase ( JPM) kicks off first-quarter earnings season on April 13.

Konrad said that "universal bank stocks have been strong this quarter, up 43%, driven by historically low price-to-tangible book value (TBV) ratios, an underweight sector, and increasing estimates," but that he expects "strong results in 1Q12, the results may not meet investor's exceedingly high expectations."

After emphasizing below-book-value picks at the end of last year, the remarkable first-quarter run for bank stocks has some investors looking further down the road, at price multiples to 2013, with the tail-end of the first-quarter run being driven by a slew of earnings estimate increases.

KBW analyst Fred Cannon said last week that "the rally in the large banks and brokers has generally been led by those banks that began the year with the lowest price/book values" -- including Bank of America ( BAC), Regions Financial ( RF), and Citigroup ( C) -- as the "global 'risk-on' trade supported the cheapest stock on book value." But looking ahead, Cannon said the rally was sustainable "only if leadership in the rally is taken over by firms with positive earnings estimate revisions."

Among the five universal banks covered in KBW's first-quarter preview, JPMorgan Chase was the most expensive to tangible book value, with shares trading for 1.5 times tangible book at Monday's closing price of $46.13, according to HighlineFI.

While Goldman Sachs ( GS) was trading just above its Dec. 30 tangible book value, Citigroup and Morgan Stanley ( MS) both traded at just 0.7 times tangible book, while Bank of America traded for 0.8 times tangible book value.

Konrad on Monday increased his first-quarter 2012 earnings estimates Citigroup, Goldman Sachs, and JPMorgan Chase, because of expected increases in trading and capital markets revenue.

The analyst lowered his 2012 EPS estimate for Morgan Stanley to a net loss of 32 cents, because of "a material debit valuation adjustment charge this quarter due to their contracting bond spreads."

Here's a quick look at all five universal banks, with KBW's take versus consensus estimates, along with recommendations and price target revisions, starting with JPMorgan Chase, which will be the first among the group to report its first-quarter results.

JPMorgan Chase
Shares of JPMorgan Chase closed at $46.13 Monday, returning 40% year-to-date, following a 20% decline during 2011.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

The shares trade for eight times the consensus 2013 earnings estimate of $5.51, among analysts polled by Thomson Reuters.

Following the completion of the Federal Reserve's 2012 bank holding company stress tests, JPMorgan led the pack by raising its quarterly dividend to 30 cents from 25 cents, and also authorized of $15 billion in share buybacks, including $12 billion this year, and another $3 billion authorized for the first quarter of 2013.

The shares now have a dividend yield of 2.60%.

Konrad on Monday raised his first-quarter EPS estimate for JPMorgan to $1.20 from $1.07, and is now ahead of the consensus estimate of $1.14.

The analyst rates JPMorgan "Outperform," and on Monday raised his price target for the shares to $55 from $52, calling JPM his "top stock into the quarter," expecting the company to set "improved trading, strong mortgage banking, and continued loan growth in its commercial book."

Konrad expects JPMorgan Chase to achieve a return on tangible common equity of nearly 15% for the first quarter, and also said that "JPM is the cheapest large-cap bank on an earnings valuation, as the stock trades below 8.0x our 2013 estimate," of $6.00.

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

Citigroup
Shares of Citigroup closed at $36.87 Monday, returning 40% year-to-date, following a 44% drop during 2011.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

The shares trade for eight times the consensus 2013 EPS estimate of $4.70.

Citigroup's plan for an increased return of capital to investors through dividend increases and share buybacks was rejected by the Federal Reserve last month, however, the company may still deploy some capital later this year, after submitting a new plan to the regulator.

Konrad calls Citi the "most intriguing stock this quarter," since the company "has made strong improvements in its balance sheet through the reduction of Citi Holding assets and the sale of investment stakes in other financial institutions."

The analyst did take a darker tone, saying it would be "intriguing to see if market share shifts occur in trading given Citi's recent reduction of employees, proprietary trading, and risk on the trading desk," in part because of the coming implementation of the Volcker Rule's ban on most "proprietary trading" by banks.

Konrad rates Citigroup "Market Perform," and despite the discount to tangible book value, he does "not believe the stock is inexpensive on earnings," because "excluding reserve release, Citi trades at 10.4x our 2013 estimate, which compares unfavorably to BAC at 8.9x and JPM at 8.6x."

KBW on Monday increased its first-quarter EPS estimate for Citigroup to 96 cents from 80 cents, and is now slightly behind the consensus estimate of a dollar.

Konrad estimates Citigroup will earn $3.60 a share for all of 2012, followed by 2013 EPS of $4.40.

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

Bank of America
Shares of Bank of America closed at $9.68 Monday, following last year's 58% plunge.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

The shares trade for nine times the consensus 2013 EPS estimate of $1.06.

While investors breathed a sigh of relief that Bank of America passed the Federal Reserve's stress tests last month, Deutsche Bank analyst Matt O'Connor on Friday said the company could eventually decide to raise common equity, in order "to repay the $5b of preferreds from Buffett (which won't count towards Tier 1 capital starting in 2013)."

Warren Buffett's Berkshire Hathaway ( BRK.B) purchased $5 billion in Bank of America preferred shares in August, with a relatively high 6% coupon, with the shares being redeemable by BAC "at any time at a 5 percent premium." Berkshire's investment also included warrants to purchase 700 million Bank of America common shares "at an exercise price of $7.142857 per share," putting the company in the money by $1.8 billion at Monday's close.

KBW analyst Jefferson Harralson rates Bank of America "Market Perform," with a price target of $9.00.

Harralson estimates that Bank of America will report first-quarter EPS of six cents, which is behind the consensus EPS estimate of 12 cents. He estimates the company will earn 65 cents for all of 2012, followed by 2013 EPS of $1.20.

KBW said late on Monday that "the economy is our chief risk as BAC's consumer-laden book is affected by the unemployment rate," and that although the company "has largely addressed its capital needs," regulatory "risks still exist for BAC."

Interested in more on Bank of America? See TheStreet Ratings' report card for this stock.

Goldman Sachs
Shares of Goldman Sachs closed at $124.90 Monday, returning 39% year-to-date, following a 46% decline during 2011.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

The shares trade for nine times the consensus 2013 EPS estimate of $13.37.

The company said on March 13 that "the Federal Reserve did not object to Goldman Sachs' proposed capital actions through the first quarter of 2013, including the repurchase of outstanding common stock and a potential increase in its quarterly common stock dividend." Goldman currently pays a quarterly dividend of 35 cents, for a dividend yield of 1.12%.

Konrad rates Goldman Sachs "Outperform," and on Monday raised his price target for the shares to $150 from $140, and also raised his first-quarter EPS estimate to $3.35 from $3.30, slightly ahead of the consensus estimate of $3.34.

KBW estimates that Goldman will earn $12.00 a share for all of 2012, followed by 2013 EPS of $14.25.

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

Morgan Stanley
Shares of Morgan Stanley closed at $19.81 Monday, returning 31% year-to-date, following a 44% decline during 2011.

Content on this page requires a newer version of Adobe Flash Player.

Get Adobe Flash player

The shares trade for nine times the consensus 2013 EPS estimate of $2.31.

The Federal Reserve on Tuesday announced "a Consent Order against Morgan Stanley to address a pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing at its subsidiary, Saxon Mortgage Services, Inc."

Morgan Stanley completed the sale of most of Saxon's assets to Ocwen Financial on Monday.

The Federal Reserve said that Morgan Stanley would be required to "retain an independent consultant to review foreclosure proceedings initiated by Saxon that were pending at any time in 2009 or 2010," for the purpose of providing "remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process."

Morgan Stanley declined to comment for this article.

While KBW expects the company to post a net loss of 31 cents a share for the first quarter, because of the aforementioned debit valuation adjustments, Konrad estimates operating earnings of 48 cents. The consensus first-quarter EPS estimate is for operating EPS of 43 cents.

Konrad rates Morgan Stanley "Market Perform," although he raised his price target for the shares on Monday to $23 from $21. The analyst calls Morgan Stanley "the most challenged stock for the quarter" among the five universal banks covered by KBW, saying the company "may offer less upside in operating earnings this quarter compared to peers, given that we expect its core strengths, investment banking and equity trading to be comparatively weak this quarter for the industry."

Konrad estimates Morgan Stanley will earn a dollar a share for all of 2012, followed by 2013 EPS of $2.10.

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

-- 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.

More from Stocks

What Does China's Tariff Deal Mean for Automakers Like Tesla?

What Does China's Tariff Deal Mean for Automakers Like Tesla?

Lowe's Taps Home Depot Veteran As New CEO

Lowe's Taps Home Depot Veteran As New CEO

Facebook CEO Mark Zuckerberg Deflects Tough Questions From European Parliament

Facebook CEO Mark Zuckerberg Deflects Tough Questions From European Parliament

WATCH: 4 Experts Lay Out How Wealthy Investors Should Play Today's Risky Market

WATCH: 4 Experts Lay Out How Wealthy Investors Should Play Today's Risky Market

These 5 Autonomous Driving Stocks Are Flashing Buy Signals

These 5 Autonomous Driving Stocks Are Flashing Buy Signals