In the light of a challenging operating environment for banks, Jason Goldberg, senior analyst at Barclays, weighs in on first quarter results from financial giants Bank of America Corp (NYSE:BAC) and Wells Fargo & Co (NYSE:WFC). Let’s take a closer look.
Bank of America Corp
Goldberg reiterated an Equal Weight rating on shares of Bank of America, with a price target of $19, after the bank reported first-quarter earnings results, which were in line with the consensus estimate for earnings per share (EPS), but came in below expectations on revenues.
Goldberg observed, “While revenues were short of consensus, a bulk of the miss was due to higher than expected negative market-related NII adjustments. Still, BAC was able to match EPS expectations, as core expenses declined. In addition, it promised to keep driving costs lower as it moves through 2016. While no formal dollar targets were laid out, it did say it “needs” to drive its efficiency ratio to the low 60%’s. Nevertheless, even ex. FAS 91/123R, its ROTCE was a relatively low 8.4%, implying to us cost controls will need to be met with improved revenues in order to return to double-digits. While higher rates would be a big help, they are not guaranteed. Nevertheless, the shares have nice support trading subtangible book.”
According to TipRanks.com, analyst Jason Goldberg has a yearly average return of 3% and a 59% success rate. Goldberg is ranked #969 out of 3879 analysts.
Out of the 24 analysts polled by TipRanks, 18 rate Bank of America stock a Buy, 5 rate the stock a Hold and 1 recommends a Sell. With a return potential of 32%, the stock’s consensus target price stands at $18.50.
Wells Fargo & Co
Goldberg took the other route, reiterating an Overweight rating on shares of Wells Fargo, with a price target of $63, after the bank reported first-quarter earnings results, posting EPS of $0.99, beating the Street estimate of $0.97.
The analyst observed, “Reported EPS beat by $0.02, though ‘special’ items added a net $0.14 to results, a higher level than the past several quarters. These gains helped compensate for a higher loan loss provision as WFC increased its oil & gas reserve to 9.3% and elevated expenses. Looking out, mortgage applications increased 20% to $77bn in 1Q16, while its unclosed pipelines rose 35%. Heading into 2Q16, we forecast mortgage revenues to rebound, in addition to higher investment banking (off low base) and investment fees (higher market levels).”
“Also, we look for its net interest income to benefit from the full impact of its GE asset purchases. Still after 1Q16 results, WFC now expects to operate at the higher-end of its efficiency range of 55% to 59% for full-year 2016 (58.7% in 1Q16). Still, we look for some relief in 2Q16, as a boost in revenues and a seasonal decline in personnel expenses should help. Additionally, a 9% energy reserve should help ease recent concerns,” the analyst added.
Out of the 14 analysts polled by TipRanks (in the past 3 months), 6 are bullish on Wells Fargo stock, 5 are neutral on the stock, and 3 remain bearish. With a return potential of 14%, the stock’s consensus target price stands at $54.75.