A Short-term Top for Bank Stocks?
The KBW Bank Index ( I:BKX) rose 1% to close at 57.11. The index has risen 11% this year, following a 30% return during 2012. "We find little in the way of fundamental support for continued outperformance... and would use this rally as an opportunity to lighten up on select regional bank exposure ahead of earnings.," Bank of America Merrill Lynch Erica Penala said in a report late on Sunday. Penala said that banks' first-quarter results "are unlikely to provide many upside surprises as loan growth" remains weak and banks continue to face pressure on their net interest margins. Penala continues to favor Citigroup ( C) and JPMorgan ( JPM), as "top picks," with price multiples that are "overly discounted." Citigroup's shares trade for 0.93 times their reported Dec. 31 tangible book value of $51.19, and for 9.1 times the consensus 2014 EPS estimate of $5.22, among analysts polled by Thomson Reuters. Penala's price target for the shares is $50.00, which she bases on estimated year-end 2013 multiples of 0.9 times tangible book value, and 10 times earnings. UBS analyst Brennan Hawken also favors Citigroup, and on Monday upgraded the stock to a "buy" rating from a "neutral" rating, with a much more aggressive price target of $62.00. Hawken said in a report that investors would " gain greater comfort" with Citigroup, as it turns into "an operating story under new CEO Mike Corbat."