Big news dropped last week that could point to the end of widespread trouble for bank stocks. In a surprising move, Morgan Stanley analyst Betsy Graseck upgraded all three of these bank stocks. She pointed specifically to the likelihood of buybacks accelerating this year, with increased IPO and M&A deal generation bumping bank stocks’ collective bottom line.
Bank stocks tend to be a bellwether for more comprehensive economic conditions; the Silicon Valley Bank collapse in 2023 was the first breaking point that indicated monetary tightening may have gone too far. Still, if bank stocks are in for the year Graseck expects, these three could top the charts soon – and offer wider solace to investors fearful of wide stock market struggles for the rest of 2024.
Bank Stocks: Bank of America (BAC)
Graseck bumped Bank of America’s (NYSE:BAC) price target to $41 from $32, indicating a hefty upside from today’s pricing. Strong commercial and business banking growth, more than doubling its additions from the previous year, means bullish tailwinds swirling.
Bank of America’s investment banking segment strength further underscores the bank’s operational stability. Hitting a 7% year-over-year (YoY) revenue growth and outperforming the industry—despite a general decline in the fee pool—highlights its strategic and tactical resilience.
Operational excellence is also evident in the bank stock’s global banking expense management, nailing a 2% decrease in YoY expenses. That’s commendable, considering higher capital costs and its ongoing expansion efforts. This disciplined approach to cost management, alongside strategic investments in global transaction services and mid-market investment banking, suggests a forward-looking growth plan that doesn’t sacrifice operational efficiency.
BAC currently offers investors a 4.55% total yield, accounting for buybacks.
Goldman Sachs (GS)
Goldman Sachs (NYSE:GS) is riding high on financial success while looking forward to renewed IPO opportunities that are its bread-and-butter. The bank stock’s fourth-quarter earnings rekindled analyst confidence with an EPS of $5.48, significantly higher than the $3.62 consensus forecast. GS also posted a revenue beat to boot. The wealth management unit’s contribution, which has substantially driven the bank’s earnings, is particularly notable.
The 51% surge in profits from the previous year marks a noteworthy turnaround, considering the bank’s prior struggles, especially with its consumer banking ventures. But the best is yet to come as Goldman Sachs courts IPO hopefuls like Reddit. Renewed IPO enthusiasm is a major moneymaker for GS and could help offset higher capital costs that squeezed its bottom line in recent years. The bank stock already called for a revival for IPOs and deal-making in December, meaning they’re positioned to race competitors as the playing field lights up.
Citigroup (C)
Citigroup (NYSE:C) is one of the top income-producing bank stocks, generating a 5.13% total yield for investors despite past layoffs indicating uncertainty. But the overall overhaul may be just what Citigroup needed, considering it identified head executives and management among the headcount reduction. The judicious approach means that, like many companies, Citigroup recognized corporate bloat in the post-ZIRP era and took steps to right-size itself. While that isn’t pleasant for those involved, a fact of life is that higher capital costs mean cost-cutting at home – and corporate bloat is easy fat to trim.
The company is also right-sizing its operational approach, moving toward higher-paying clients and courting rich customers that otherwise went unnoticed by the bank stock. That renewed operational focus indicates that Citigroup’s management is deliberately identifying what’s gone wrong in recent years – and is taking definitive steps to address them.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
