The two largest banks in America, Bank of America Corp (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM), both recently received approval for share repurchases. Analyst Susan Roth Katzke of Credit Suisse views this as a positive update and shares her bullish sentiments on the two banks; however, she does not make any drastic increases in forecasts in light of the challenging macro environment. Let’s take a closer look.
Bank of America Corp
Katzke weighed in on financial giant Bank of America following updates from the company’s board regarding share repurchases. The analyst reiterated an Outperform rating and a price target of $18, noting that the additional share purchase program is a positive catalyst.
The company released news that its board “authorized the repurchase of up to $800mn in common equity through the end of 2Q16.” The analyst feels this is favorable for the company “both fundamentally as a means to efficiently redeploy excess capital and equally as positive as a signal of how far this bank, and the industry broadly, has come in complying with the new regulatory framework.”
Despite these encouraging updates for the company, Katzke’s estimates remain unchanged. The analyst stated, “[her] estimates remain quite sensitive to the macro environment (interest rates, credit quality, and the capital markets).” However, the authorization of additional share repurchases increases the analyst’s conviction of her rating. The analyst stated, “Organic revenue growth, expense initiatives and evidence of effective risk management… are critical to sustained share price outperformance and realization of our $18 target price.”
According to TipRanks, analyst Susan Roth Katzke has a 50% success rate recommending stocks and an average loss of 2.1% per rating. 12 analysts have weighed in on BAC in the last three months with 8 bullish, 3 on the sidelines and 1 bearish. The average 12-month price target for the stock is $18.10, marking a 31.25% upside from where shares last closed.
JPMorgan Chase & Co.
Katzke also weighed in on financial giant JPMorgan Chase and reiterated an Outperform rating with a $75 price target for the stock following the approval of an additional share repurchase program.
The company released news “that its Board had authorized repurchase of up to $1.88bn of common equity through the end of 2Q16.” These repurchases are in addition to the previously authorized $6.4bn of common equity repurchases. The analyst sees this news as “positive any way you look at it.” In light of this news, the analyst slightly raised 2016/17/18 share repurchase expectations. Banks, such as JPMorgan Chase, are typically eager to buy back stocks in tumbling financial markets because it allows them to instantly boost the value of their company. However, federal regulations are in place to limit big banks and these actions need approval from regulatory agencies. Hence, Katze views the approval for JPM as a win.
While Katzke remains sensitive to threats in the macro environment, her estimates were “fine-tuned upwards” following these announcements. Katzke stated, “Sustained share price outperformance relies on continued above average [return on equity] generation.”
According to TipRanks, 8 analysts are bullish on JPM and 2 are neutral. Between these 10 analysts who weighed in on JPMorgan Chase in the last 3 months the average 12-month price target is $71.50, marking an 18.22% upside from where shares last closed.