Buy Citigroup Inc (C) Stock, Hold Your Horses with JPMorgan Chase & Co. (JPM): Oppenheimer

Oppenheimer's 3Q Take on Two Banking Giants: C, JPM.


As the earnings season has just kicked off, we are now hailing some of the first reporters. Let’s take a look and see what Oppenheimer analyst Chris Kotowski has to say about banking giants Citigroup Inc (NYSE:C) and JPMorgan Chase & Co.(NYSE:JPM).

Before we start, as usual, we like to include the analyst’s trackrecord when reporting on new analyst notes. According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, Kotowski has a yearly average return of 11.4% and a 71% success rate. Kotowski is ranked #103 out of 4694 analysts.

Citigroup Reports Solid 3Q17; Kotowski Cheers

Kotowski is bullish on Citigroup after the financial services leader posted 3Q17 EPS of $1.42, beating his $1.35 estimate. These results in turn were due to stronger than expected core operating fundamentals partially offset by higher than expected credit costs.

Citigroup’s credit costs were up 15% year over year to $2 billion. This rise largely reflects net credit losses of $1.8 billion and a net loan loss reserve build of $16 million due to hurricane and earthquake-related loan loss reserve builds.

Kotowski noted, “We are not concerned about credit quality, however. NPAs were, once again, down $0.1B to $5.0B—a minimal 0.7% of loans. Critics might raise an issue about a $0.5B reserve build in cards, but in the context of 6.8% loan growth we think that is reasonable. Management also cited the impact of the hurricanes.”

As such, Kotowski reiterates an Outperform rating on Citigroup shares, with a price target of $81, which represents a potential upside of 12% from where the stock is currently trading.

How does Kotowski’s bullish bet weigh in against the Street? It appears the analyst is not the only one enthusiastic on this banking giant’s prospects, with TipRanks analytics demonstrating C as a Strong Buy. Out of 12 analysts polled in the last 3 months, 9 are bullish on Citigroup stock while 3 remain sidelined. With a return potential of nearly 7%, the stock’s consensus target price stands at $77.40.Citigroup analyst ratings chart

JPMorgan’s FICC Trading Is Still in the Doldrums

Kotowski remains sidelined on JPMorgan shares following the banking giant’s third quarter results. The analyst reiterates a Perform rating without suggesting a price target.

JPM reported 3Q17 EPS of $1.76, topping Kotowski’a estimates of $1.65. However, FICC sales & trading revenue of $3.16 billion was shy of the $3.18 billion that the analyst was anticipating.

Kotowski noted, “The “read through” is that the spread lending businesses are doing well. FICC trading is still in the doldrums […] We’ve minor changes to our model and have raised our 2018 estimates. We continue to believe that JPM is an excellent long-term holding, but at 1.8x TBV, we think BAC and C are a better relative value right here among the mega banks.”

Wall Street is torn when it comes to whether to sing this banking giant praises or assess with an apprehensive gaze, as according to TipRanks, out of 11 analysts polled in the last 3 months, 5 are bullish on JPM stock, 5 remain sidelined, and one is bearish. With a slight downside potential, the stock’s consensus target price stands at $94.56.JPM analyst ratings chart