Analyst Forecasts Bright Future for Banks
HSBC Global Research analyst Saul Martinez recently adjusted ratings on several banks, taking a cautiously optimistic stance on super regional banks.
Martinez predicts that in 2025, these banks will see growth in net interest income (NII), improved adjusted EPS, enhanced operating leverage, and increased share buybacks.
Anticipating a rebound in NII in the second half of 2024 and into 2025, Martinez highlights the easing of deposit cost pressures and the repricing of fixed-rate assets at higher yields as contributing factors.
Earnings Outlook and Concerns
As the first-quarter earnings season approaches, Martinez emphasizes a focus on NII projections, credit losses, loan loss reserves, efficiency enhancements, and capital returns.
However, Martinez’s projections include higher loan loss reserve builds in 2024 and a potentially more prolonged recovery in investment banking fees than initially expected.
Excluding Citigroup Inc. (C), Martinez forecasts an average adjusted EPS growth of approximately 13% in 2025 for the banks under review, contrasting with a 7% decline projected for 2024.
Upgrades and Downgrades
The analyst upgraded U.S. Bancorp (USB) to Buy from Hold, with a revised price target of $53, citing the bank as their top choice among US super-regionals poised to expand profitability and sustain strong returns on tangible common equity in 2025.
Conversely, Martinez upgraded The PNC Financial Services Group, Inc. (PNC) to Hold and raised the price target to $155 from $141, foreseeing a resurgence in NII growth in the latter part of fiscal year 2024 and a quicker path to share repurchases than previously anticipated.
Martinez praises PNC’s competitive market position, disciplined credit quality approach, and consistent return on equity as positive indicators.
On a different note, the analyst downgraded Bank of America Corporation (BAC) to Hold but increased the price target to $39 from $38. While dispelling market concerns of needing to catch up by raising deposit costs to boost earnings, Martinez notes a slight dip in EPS estimates for 2024 and 2025 since September 2023.
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