It is not rare to see multiple analysts chime on the same stock around earnings and key events. It’s not as common to see banking analysts chime in on each other’s stocks within the same 24-hour period in the middle of a dead trading time. So what happens when banking analysts come out in favor of each other’s stocks when there is effectively no news or events driving the interest?
Goldman Sachs Group Inc. (NYSE: GS) has come out with a very favorable price hike for Bank of America Corporation (NYSE: BAC) less than 24 hours after BofA Securities came out calling for a higher re-rating of Goldman Sachs.
BofA Says…
According to the fresh BofA report, analyst Ebrahim Poonawala sees Goldman Sachs’ shares in the midst of a secular re-rating. BofA reiterated its Buy rating and $700 price objective versus a $614.87 prior close. The report is calling for a structurally higher return on equity, superior growth, and durability in its capital markets revenue. BofA also sees Goldman Sachs having strong competitive positioning in secular growth areas such as private credit and wealth management with wide competitive moats that are hard to replicate.
BofA’s valuation analysis also sees Goldman Sachs as a compelling risk/reward profile at 11.3 times earnings versus an average of 16-18 times for Alts and 14-times for rival Morgan Stanley (NYSE: MS). The bank’s investment rationale sums it up:
We rate Goldman Sachs Buy as we believe it is one of the best financial franchises (and among the strongest risk managers) globally at relatively discounted valuations on mid-teens ROE potential. We see stock multiples to re-rate relative to its history over the past decade as investors better appreciate growth opportunities, ROE defensibility and see progress towards growing contribution to the bottom line from the higher P/E asset management business.
Goldman Positive on Other Banks Too
Bank of America’s stock was reiterated as Buy and its price target was raised to $52 from $46 in an updated call as a broader review of the financial sector. BofA shares closed up 0.5% at $45.09 on Tuesday. Goldman Sachs sees ongoing trends and potential growth being undervalued in the bank sector. Other stocks were highlighted on June 10 as well:
- Citigroup (NYSE: C) was reiterated as Buy and its price target was raised to $85 from $75.
- Morgan Stanley was maintained as Neutral but its price target was raised to $136 from $121.
- US Bacorp (NYSE: USB) was reiterated as Neutral buy its price target was raised to $46 from $41.
- Wells Fargo was reiterated as Buy and its price target was raised to $86 from $76.
Disclaimer
Oggonomics always reminds is readers that no single analyst report should ever be the sole basis to buy or sell a stock. This is particularly true for aggressive “Buy” ratings that may be the street-high analyst price targets or that may even come from the well-known Conviction Buy List from Goldman Sachs or the US1 list from BofA Securities. Research analysts sometimes get their thesis wrong just like the rest of us.
All analyst ratings and price targets mentioned above were issued by Goldman Sachs and BofA by name in this summary. Their ratings and targets may differ greatly from other firms on Wall Street. Oggonomics does not issue any formal ratings and does not maintain any price targets of its own on these stocks. Also please remember that no analyst report, even those with the strongest conviction, ever comes with any guarantees of profits and they never contain money-back guarantees in case you lose money.
