Citi, JPM Seen as Best Bank Stocks for Tepid 2H

NEW YORK ( TheStreet) - With the sector soaring so far this year, bank stocks may be pressured in the last four months, and "the banks best positioned are those institutions that can grow revenues, effectively manage expenses and deploy capital," according to Credit Suisse analyst Moshe Orenbuch.

"For 2013, we rank C and JPM at the top of this list," Orenbuch wrote in note to clients late Wednesday.

As TheStreet outlined in 5 Cheapest Bank Stocks last month, shares of Citigroup ( C) and JPMorgan Chase ( JPM) trade at very low multiples to forward earnings estimates, when compared to their large bank peers, and even when compared to smaller regional banks.

Orenbuch rates both stocks "Outperform," with a $60 price target for Citigroup and a price target of $65 for JPMorgan.

Citi's shares closed at $49.60 Wednesday and traded for 9.1 times the consensus 2014 earnings estimate of $5.46 a share, among analysts polled by Thomson Reuters.

JPMorgan Chase closed at $51.87 Wednesday. The shares traded for 8.5 times the consensus 2014 EPS estimate of $6.11.

Here's how those valuations stack up against the other two members of the "big four" U.S. banking club:

Bank of America's ( BAC) shares traded for 10.5 times the consensus 2014 EPS estimate of $1.36, based on Wednesday's close at $14.32.

Despite being consistently the most profitable among the big four, Wells Fargo's ( WFC) shares are slightly cheaper on a forward P/E basis than Bank of America's shares, closing at $41.50 Wednesday, or 10.3 times the consensus 2014 EPS estimate of $4.02.

Citigroup

In his review of management commentary for the largest U.S. banks during the first half of 2014, Orenbuch highlighted the return of positive operating leverage in Citigroup's Latin American and Asia businesses during the second quarter. Citi expects to continue for the rest of 2013, which is especially important, as 57% of the company's revenue during the second quarter came from outside the United States. This makes Citigroup a unique play among the big four.

Citigroup estimated that its Basel III Tier 1 common equity ratio was 10.0% at the end of the second quarter, putting the company in fully compliance with the Federal Reserve's minimum requirement of 7.0% plus an additional 2.5% buffer as a global systemically important financial institution (GSIFI) years ahead of the January 9.5% several years ahead of the January 2019 due date.

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