Wells Fargo, JPMorgan named top picks by Goldman Sachs for potential first-quarter upside surprise

By Steve Gelsi

Analysts see Wells Fargo and JPMorgan Chase potentially outshining Morgan Stanley, Citi, PNC, U.S. Bancorp and Bank of America

JPMorgan Chase & Co. and Wells Fargo & Co. both ranked as top picks on Tuesday among the seven large-bank stocks covered by Goldman Sachs analysts.

Goldman Sachs analysts led by analyst Richard Ramsden said JPMorgan Chase (JPM) and Wells Fargo (WFC) have provided "conservative" guidance on their net interest income, which is the profit banks make from loans after they pay out interest for their deposits.

The banks are outshining Morgan Stanley (MS), Bank of America Corp. (BAC), U.S. Bancorp (USB), Citigroup Inc. (C) and PNC Financial Services Group Inc. (PNC), which are also tracked by Goldman Sachs.

Goldman lifted its price target for Wells Fargo to $65 a share from $57 and hiked its JPMorgan Chase price target to $229 from $215.

On average, Goldman hiked its 12-month price targets for the seven banks by 6%.

The analysts reiterated buy ratings on Morgan Stanley, JPMorgan, Wells Fargo, Bank of America and Citigroup. They kept neutral ratings on PNC and U.S. Bancorp.

The positive expectation for net interest income at JPMorgan Chase and Wells Fargo was driven by a cautious view of deposits and loan growth, with the potential for both banks to deliver better-than-expected results when they report their first-quarter earnings on April 12, analysts said.

"Both could surprise to the upside in terms of fee revenue, as they benefit from the secular recovery and share gains in capital markets," they said.

JPMorgan is also realizing synergies from its deal to buy First Republic Bank.

Both JPMorgan and Wells Fargo are holding excess capital, "which implies there is room for earnings upside from both greater capital returns than forecasted, and/or redeployment of capital into the business, accelerating revenue growth," the analysts said.

Macroeconomic and industry factors in the mix include the potential for fewer rate cuts by the U.S. Federal Reserve in 2024 than previously expected - as few as two.

Analysts are also weighing stronger investment and capital-return prospects if regulators pare back the proposed capital requirements under the Basel III banking guidelines.

Banks may also face deterioration in credit quality due to potential losses on commercial real estate and credit cards.

Also read: JPMorgan credit outlook upgraded to positive from stable at S&P for 'superior resilience'

-Steve Gelsi

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04-02-24 1507ET

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