Goldman Sachs contends that stocks of several large financial firms are poised to rip higher over the next 12 months as dividends increase, and share repurchases expand, CNBC reported.
The firm currently has "Buy" ratings on the stocks of Bank of America (BAC) , PNC (PNC) , and Wells Fargo (WFC) . Goldman assigned a $28 price target on Bank of America, a $139 price target on PNC and a $60 price target on Wells Fargo.
"We believe 2017 will mark an inflection point in the amount of capital the Fed allows financials firms to return to shareholders. ... This is the first year that certain money center banks have been permitted to pay out more than net income," Goldman strategist David Kostin noted, according to CNBC. "Accelerating dividend growth should attract equity income investors, who are broadly underweight the financials sector."
Analysts at the firm estimate that the bank sector will increase its dividend by 17% annually over the next two years. Kostin also noted that recent positive Federal Reserve stress tests would allow the banks to compete in increasing share buybacks by 45% this year.
Stock "repurchases will lift earnings per share, return on equity and share prices," he wrote. "Our economists forecast faster inflation and Fed tightening than the market expects."
"Recent client conversations have focused on the prospects for stocks in the financials sector, which we recommend as an overweight despite recent underperformance," Kostin added.
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