Nomura Sees Upside for Shares of Wells, U.S. Bancorp, PNC and Regions

(This article was originally published Tuesday.)

 
 
   By Matthias Rieker 
 

Nomura Equity Research initiated coverage of nine large banks, putting "buy" recommendations on Wells Fargo & Co. (WFC), U.S. Bancorp (USB), PNC Financial Services Group Inc. (PNC), and Regions Financial Corp. (RF).

SunTrust Banks Inc. (STI), Fifth Third Bancorp (FITB), KeyCorp (KEY), Comerica Inc. (CMA) and Huntington Bancshares Inc. (HBAN) are rated "neutral."

None of the nine banks have significant capital-markets operations but they did well last year as mortgage and lending business helped to boost revenue. The banks, however, suffered from falling interest rates and analysts had worried that at least some of them would struggle to grow in the slow economic recovery.

Nomura expects Wells Fargo, PNC and U.S. Bancorp to do well--and to cut expenses to increase earnings. Regions' losses from delinquent loans continue to abate and the bank will be able to return more capital to shareholders, Nomura analyst Keith Murray wrote in his research report.

The shares of all nine banks have risen last year and so far in 2013, as have the shares of most banks. So far this year, however, Wells Fargo and U.S. Bancorp have lagged behind their rivals. The two made it through the 2008 financial crisis in better shape than most, but so far this year their shares have risen only 1.96%, to $34.85, and 3.73%, to $33.13, respectively.

Nomura said it expects Wells Fargo's shares to rise to $42 over the next 12 months, and U.S. Bancorp's to advance to $38.

PNC's shares have risen 8.37% this year, to $63.19; and Regions' are up 11.2%, to $7.93. Mr. Murray's target price for PNC is $72 and it is $9 for Regions.

Fifth Third, too, is expected "to show stable trends" this year, particularly rising fee revenue, Mr. Murray wrote. But its stock might not rise much because of "meager" earnings-per-share growth and fewer expense cuts, he wrote.

The Cincinnati bank's shares have risen 8.62% so far this year, to $16.51. Mr. Murray's target price for Fifth Third is $17.

KeyCorp strengthened last year mainly by acquiring customers from other banks. The company has told investors that it is cutting expenses but would reinvest part of the savings into improving its technology and expand. "We think KeyCorp is building for better long-term returns and deserves credit for solid loan growth," Mr. Murray said. But because of KeyCorp's investments, earnings per share won't benefit from the expense cuts, he said.

The Cleveland bank's shares have risen 12.7% so far this year, to $9.49. Mr. Murray's target price for KeyCorp is $10.

At SunTrust, Mr. Murray expects income from lending and investing to decline this year as a result of consistently low interest rates. He also expects loan growth to remain sluggish. At Comerica, earnings growth is limited and shares might not increase much, Mr. Murray wrote, and at Huntington, loan growth is expected to remain sluggish and expenses to rise faster than revenue.

SunTrust's shares are up 1.45% so far this year, to $28.76; Comerica's are up 14.8%, to $34.83; and Huntington's shares have gained 11.42%, to $7.12. Mr. Murray's target price for SunTrust is $31, it is $35 for Comerica and $7.50 for Huntington.

Investors have been waiting for the Federal Reserve to allow banks to increase share buybacks and dividend increases, and Mr. Murray said Wells Fargo, U.S. Bancorp, Regions, Comerica and KeyCorp are well positioned for capital returns.

Write to Matthias Rieker at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires