In a research note to investors, Atlantic Equities analyst John Heagerty downgraded Goldman Sachs (GS) to Neutral on a more subdued environment for investment banking activity. Meanwhile, both Bank of America (BAC) and Morgan Stanley (MS) saw their ratings cut to Market Perform at Keefe Bruyette on an apparent lack of upcoming catalysts.
MORE ‘SUBDUED’ ENVIRONMENT: Atlantic Equities analyst John Heagerty downgraded Goldman Sachs to Neutral from Overweight and cut his earnings per share forecasts by 5% in FY19 and 7.5% in FY20 to reflect a more subdued environment for investment banking activity. Additionally, the analyst lowered his price target on the shares to $210 from $295, citing his reduced estimates as well as a 15% discount to valuation to reflect uncertainty regarding new CEO David Solomon's strategy and the 1MDB investigation.
LACK OF CATALYSTS AHEAD: Less bullish on Morgan Stanley (MS) than his peer at Atlantic Equities, who kept an Overweight rating on the shares, Keefe Bruyette analyst Brian Kleinhanzl downgraded the stock to Market Perform and lowered his price target to $29 from $34 on lack of catalysts in 2019. Additionally, the analyst cut his rating for Bank of America to Market Perform from Outperform and lowered his price target on the shares to $45 from $56, citing similar concerns. In a separate research note to investors, Keefe Bruyette analyst Frederick Cannon also downgraded the Universal Banks sector to Market Weight from Overweight, noting that stocks in the space underperformed the broader market this year as loan growth repeatedly disappointed and macroeconomic risks weighed on shares into year-end. Overall, as Cannon looks into 2019, he does not see “enough positive catalysts emerging” that could move the group higher. Further, the analyst pointed out that while Universal Banks are currently trading at 60% of the S&P 500 based on 2019 consensus earnings estimates, the relative valuation is not enough to make him stay constructive on the group. Cannon is expecting consensus estimates to be revised lower and believes concerns on credit are not expected to abate.
COMERICA, KEYCORP ALSO DOWNGRADED: Meanwhile, Keefe Bruyette analyst Brian Klock downgraded KeyCorp (KEY) and Comerica (CMA) to Market Perform from Outperform, and lowered his price target on the former to $19.50 from $23 and on the latter to $87 from $110. Comerica's revenue and earnings growth are largely dependent upon future Fed funds hikes, Klock contended. He sees risk to his revenue growth assumptions next year for KeyCorp and does not see 2019 as the year the company's price-to-earnings multiple closes the discount compared to peers. Klock's top overweight picks among the Large Regional banks are Citizens Financial (CFG), M&T Bank (MTB), SunTrust (STI) and Zions Bancorp (ZION), he noted.
PRICE ACTION: In morning trading, shares of Morgan Stanley have gained about 1% to $41 and Goldman shares have advanced fractionally to $177.27. Meanwhile, shares of Bank of America are nearly flat at $24.59.
Morgan Stanley
+0.68 (+1.67%)
Bank of America
+0.09 (+0.37%)
Goldman Sachs
+1.76 (+1.00%)
KeyCorp
+0.145 (+0.91%)
Comerica
+1.74 (+2.44%)
Citizens Financial
+0.52 (+1.64%)
M&T Bank
+0.94 (+0.61%)
Solidion
+0.08 (+0.15%)
Zions Bancorp
+0.6 (+1.38%)