BofA believes last week's strong trading/investment banking results bode well for Goldman Sachs and Morgan Stanley Goldman Sachs (GS) is scheduled to announce quarterly results on July 15, while Morgan Stanley (MS) and Bank of America (BAC) are expected to report earnings the following day. What to watch for:
POSITIVE READ THROUGHS: Results from three banks last week were broadly in line with expectations, with core Q2 EPS beating BofA/consensus forecast on stronger revenue growth, BofA says. BNY Mellon (BK) was the best of the lot on stronger revenue growth, with JPMorgan (JPM) revenues slightly better, full year 2024 guidance unchanged. Wells Fargo's (WFC) EPS beat on by stronger fees and lower credit costs, but pre-market negative stock reaction was driven by management raising expense guide and narrowing net interest income guide to down 8%-9%. All three banks are asset sensitive and investors will be focused on net interest income/EPS defensibility in face of Fed rate-cuts, the firm adds.
BofA believes the strong trading/investment banking results bode well for Goldman Sachs and Morgan Stanley, and support its "Wall Street > Main Street" view into Q2 prints. While there is some caution around Morgan Stanley's net new asset growth, the firm notes relatively strong trends reported by JPMorgan with assets under management for the quarter, long-term net inflows of $52B and liquidity net inflows of $16B. BNY Mellon's strong results augur well for Q2 results from trust bank peers – State Street (STT) and Northern Trust (NTRS).
INEXPENSIVE VALUATION: Earlier this month, Seaport Research upgraded Bank of America to Buy from Neutral with a $48 price target. The firm says recent management guidance implies turnover across the bank's loan book is improving, with potential further upside as cash flow hedges on commercial and industrial loans mature. Meanwhile, industry deposit growth is coming in better than expected, and the "higher-for-longer" interest rate environment buys more time for Bank of America to re-price assets at higher rates and return to balance sheet growth, Seaport tells investors in a research note. With further net interest income tailwinds in 2026 and beyond and a "still inexpensive" multiple, the stock is attractively valued, contends the firm.
BOTTOMING NET INTEREST: On Tuesday, Piper Sandler upgraded Bank of America to Neutral from Underweight with a price target of $42, up from $37. With the bank's net interest income set to trough in Q2 and then inflect higher for a sustained period, there is less reason to single the stock out for underperformance, the firm tells investors in a research note. Piper still sees better opportunity in peers Citi (C) and JPMorgan.
MOVING TO THE SIDELINES: Earlier this month, Seaport Research downgraded Goldman Sachs to Neutral from Buy with no price target, telling investors that the downgrade is primarily driven by valuation after a significant rally in the stock. While Goldman remains most leveraged among the large banks to a recovery in investment banking activity, the firm's and consensus estimates "do already reflect a healthy rebound."
TARGET RAISED: On Tuesday, UBS raised the firm's price target on Goldman Sachs to $535 from $490, while keeping a Buy rating on the shares, and raised its price target on Morgan Stanley to $105 from $100, maintaining a Neutral rating on the name. Data points continue to support a cap markets recovery, while wealth management multiples have recovered, the firm tells investors.
Evercore ISI also raised the firm's price target on Goldman Sachs to $475 from $440, on Morgan Stanley to $105 from $102 and Bank of America to $43 from $41, keeping Outperform ratings on all names. The firm is adjusting estimates and targets for several brokers, banks and asset managers heading into earnings season after a "fine" Q2 in capital markets, contending that the "slow recovery" is "still in motion."
Additionally, Jefferies raised the firm's price target on Bank of America to $41 from $39 but kept a Hold rating on the shares. The firm has moved to forecasting five Fed cuts of 25 basis points through 2025 and believes bank net interest margins will benefit from fixed-rate asset repricing and roll-off of swaps/hedges for many, adding that softer loan growth and higher deposit costs are "the main results of higher-for-longer" in a preview note ahead of results from the bank group.
