Citigroup (C )
Citigroup trades at a respective 9.7x and 7.5x past and forward earnings. Consensus estimates for the company's EPS forecast that it will grow by 13.3% to $4.18 in 2012 and then by 12.4% and 9.4% in the following two years. Assuming a multiple of 10x and a conservative 2013 EPS of $4.66, the stock would rise by 33.7%.
During the first quarter, operating revenue grew 1%, but net interest income was still above consensus. Keep in mind, however, that the net interest margin of 2.9% was still below that of Wells Fargo (WFC ) and US Bancorp (USB ). Loan growth was weak in Asia, yet notably strong in the EMEA zone. With the bar set low, the opportunities for high risk-adjusted returns are strong. After all, Citigroup has a beta of 2.6 - the highest of any of the companies highlighted in this report.
JPMorgan Chase (JPM )
JPMorgan trades at a respective 9.6x and 7.8x past and forward earnings. Consensus estimates for the company's EPS forecast that it will grow by 10.5% to $4.95 in 2012 and then by 12.9% and 9.3% in the following two years. Assuming a multiple of 10x and a conservative 2013 EPS of $5.52, the stock would rise by 27.7%.
I anticipate JPMorgan outperforming the broader market due to its strong brand name and better-than-acknowledged secular trends in investment banking. With the company carrying the Facebook (FB ) IPO, JPMorgan has secured an attractive foothold in NASDAQ securities. At the same time, the stock is not overly risky, with a beta of 1.3 and a dividend yield of 2.8% - the highest of any of the companies highlighted in this article. Thus, while Citigroup is a high risk/high reward play, JPMorgan has slightly lower upside in exchange for slightly greater safety.
Wells Fargo
Wells Fargo trades at a respective 11.4x and 9.1x past and forward earnings. Consensus estimates for the company's EPS forecast that it will grow by 15.6% to $3.26 in 2012 and then by 12.6% and 12.3% in the following two years. Assuming a multiple of 10x and a conservative 2013 EPS of $3.61, the stock would rise by only 9%.
Although I am optimistic about the revenue and cost synergies from the Wachovia merger, I believe that the goal for $11B in quarterly non-interest expenses errs a little on the high side. The company will also become a greater regulatory target due to the merger and lower leverage on the balance sheet will fail to fully exploit gains from a full recovery.
US Bancorp
US Bancorp trades at a respective 12.7x and 10.5x past and forward earnings. Consensus estimates for the company's EPS forecast that it will grow by 13.7% to $2.74 in 2012 and then by 9.1% and 10.7% in the following two years. Assuming a multiple of 10x and a conservative 2013 EPS of $2.94, the stock would fall by 5.8%.
The company delivered strong results during the first quarter. Revenue grew 9.1% over 1Q11 as average loans grew 6.4% y-o-y. Most importantly, credit quality improved as net charge-offs fell 8.2%. Unfortunately, much of these positive metrics has been factored into the stock price. For the year to date, the company has outperformed the Dow Jones by 930 basis points. In light of the company having the same volatility as the broader market, I do not recommend an investment in it right now.
Source : seekingalpha.com
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