Investors knew S&P 500 bank profits would soar in the first quarter. But the financial sector’s results topped even bullish views, prompting investors to pick future favorites.
Analysts see the strongest stock price upside over the next 12 months in six S&P 500 banks — including Citigroup (C), Truist Financial (TFC) and KeyCorp (KEY) — says an Investor’s Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. Analysts think six of the 18 bank stocks in the S&P 500 still have more than 8% upside.
But to be fair, analysts are bullish on the whole bank industry group. S&P 500 analysts think all 18 bank stocks in the S&P 500 are undervalued, just by varying degrees.
Why? Banks are setting the bar high for S&P 500 first-quarter profit reporting season. This week, all the major S&P 500 financials, including Bank of America (BAC) and Citigroup, reported strong first-quarter profit that topped views. That comes following strong results from Wells Fargo (WFC), Goldman Sachs (GS) and JPMorgan Chase (JPM). Morgan Stanley (MS) is due to report on Friday.
“After a brutal 2020, the 2021 outlook is looking increasingly bullish for the sector as the U.S. economic recovery becomes more established,” said Sophie Griffiths, market analyst at Oanda.
S&P 500 Financials: A Dog No More
All eyes are on S&P 500 financials. The S&P 500 marched to another all-time high on Thursday. And financials are a big reason.
The Financial Select Sector SPDR ETF (XLF) is the second-best performer among the 11 S&P 500 sectors this year, gaining 19.2%. The sector is benefiting from a stronger economy. Bank stocks are better yet. The Invesco KBW Bank ETF (KBWB) is up 25.1% this year. The S&P 500, in contrast, is up 11%.
Powerful earnings growth is underpinning the financial sector’s gains. Analysts think the S&P 500 financial sector’s profits will jump 78.7% in the first quarter, says Factset. That’s the second-highest profit growth expected from any sector in the quarter.
The sector’s final profit growth, too, will likely wind up even better than that. Citigroup, for instance, this week posted 241% higher first-quarter profit of $3.62 a share. That topped expectations by a whopping 43%.
Powerful earnings growth explains why Citigroup is the bank stock that analysts think has the most room to go higher from Thursday’s close of 72.54. Shares of Citigroup could jump an additional 15.4% until hitting analysts’ 12-month price target of 83.71. That’s more upside than in any other S&P 500 bank. Do you know what to look at before buying Citigroup stock?
Favorite S&P 500 Bank Stocks
But while Citigroup is analysts’ favorite bank in the S&P 500, hopes are high for some regional banks.
Take Truist Financial. It’s a Charlotte, N.C.-based operating company of banks in the Southeast and mid-Atlantic regions. The stock is already up 19.4% this year to 57.22. But analysts think it still has 11.8% upside before hitting their 12-month price target of 63.96.
The bank on April 15 reported a 36% jump in first-quarter profit of $1.18 a share. That topped views by 7%. Analysts think the bank’s profit will rise more than 24% this year. No wonder it sports an IBD Composite Rating of 93, meaning its fundamentals and stock action are in the top 7% of all stocks.
Similarly, analysts are also bullish on Cleveland-based KeyCorp. Shares are already up more than 25% this year to 20.60, but analysts still see nearly 10% upside. Part of the expected gain is yet to be justified, as the bank is to report first-quarter profit on April 20.
Analysts think KeyCorp’s profit in the first quarter will soar 300% to 48 cents a share. And KeyCorp’s profit is expected to gain more than 50% in 2021.
Solid first-quarter results are a lock from S&P 500 financials. But investors still seem to be banking on big gains to come.
High Hopes For S&P 500 Banks
Analysts see the most upside in Citi, followed by Truist Financial and KeyCorp.
|Ticker||YTD stock change||Target price||Implied upside*||Composite Rating|
|Citizens Financial Group||(CFG)||24.9%||48.52||8.6%||84|
Sources: IBD, S&P Global Market Intelligence, * to analysts’ 12-month price targets
Follow Matt Krantz on Twitter @mattkrantz
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