Bank Stocks Do It Again: Financial Winners

NEW YORK ( TheStreet) -- Capital One ( COF) was the winner among the nation's largest banks on Monday, with shares rising 2% to close at $61.81.

The broad indices all ended with slight declines, but bank stocks continued their amazing run, with the KBW Bank Index ( I:BKX) rising 0.5% to close at 61.43. The KBW index is up 20% this year, after rising 30% during 2012.

Investors are looking ahead to Federal Reserve chairman Ben Bernanke's testimony before the joint congressional Economic Committee on May 22, ahead of the release of the minutes of the most recent meeting of the Federal Open Market Committee, on April 30 and May 1. Investors continue to wonder, as they must, when the central bank will slow the expansion of its balance sheet from monthly purchases of $85 billion in long-term securities, in an effort to hold down long-term interest rates.

The Fed has kept the short-term federal funds rate in range of zero to 0.25% since late 2008.

Federal Reserve Bank of Chicago president Charles Evans on Monday gave a hint of what the gist of Bernanke's testimony might be, saying in a speech before the CFO Society Chicago that "we need a little more time" to assess U.S. employment growth, according to a MarketWatch report. This suggested that at its next meeting on June 18 and 19, the FOMC may not curtail the Federal Reserve's net balance sheet expansion.

Capital One's shares have returned 7% this year, following a 36% return during 2012. The shares trade for 9.3 times the consensus 2014 earnings estimate of $6.66 a share, among analysts polled by Thomson Reuters.

Here's how that forward price-to-earnings compares to the "big four" U.S. banking club:
  • Wells Fargo (WFC) closed at $40.20, trading for 10.6 times the consensus 2014 EPS estimate of $3.81.
  • Bank of America (BAC) closed at $13.51, trading for 10.5 times the consensus 2014 EPS estimate of $1.29.
  • Shares of Citigroup (C) closed at $51.60, trading for 9.7 times the consensus 2014 EPS estimate of $5.32.
  • Among the big four, JPMorgan Chase (JPM) trades at the lowest forward price-to-earnings ratio. The shares closed at $52.29 Monday, trading for 8.8 times the consensus 2014 EPS estimate of $5.94. JPMorgan Chase will hold its annual meeting on Tuesday, with all eyes on a non-binding proxy vote on whether or not James Dimon's dual roles as CEO and chairman should be separated.

Considering the company may still be few years away from "normalized earnings," as it continues, with great success, to work through investors' mortgage repurchase demands, Bank of America's shares are looking a bit frothy. The shares have returned 16% year-to-date, following a 110% return during 2012.

KBW analyst Christopher Mutascio on Sunday downgraded Bank of America to a "market perform" rating from "outperform," because the stock had come close to his price target of $13.50.

"We are more than happy to take some profits off the table," Mutascio wrote in a note to investors, adding "we are in a broad-based rally in the banking sector that we admittedly don't fully understand, as it is not supported by any signs/catalysts for improved revenue growth."

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

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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 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.