The top U.S. banks are about to announce Q3 earnings, with Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Morgan Stanley (NYSE:MS) reporting on October 14. Meanwhile, Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) are scheduled to announce Q3 results next week. While higher interest rates are expected to support these banks’ NII (net interest income), an increase in provisions, cost headwinds, depressed capital market activity, and tough comparisons could weigh on their earnings.
Pick the best stocks and maximize your portfolio:
- Discover top-rated stocks from highly ranked analysts with Analyst Top Stocks!
- Easily identify outperforming stocks and invest smarter with Top Smart Score Stocks
Key Trends to Look Out For
Banks are poised to benefit from the combination of an increase in loan balances and higher interest rates. Though the credit quality could remain stable, provisions for credit losses are likely to increase given the growth in loans and dampening macro outlook. Also, the tough year-over-year comparisons (record low provisions in the prior year) will take a toll on the earnings of these banks.
The fact gets strength from Wells Fargo’s CEO Charlie Scharf’s Q3 outlook. Providing a perspective for Q3, Scharf stated that he expects provisions for credit losses to increase from the lower levels of the prior year. However, he added, “We have yet to see any meaningful deterioration in either our consumer or commercial portfolios.
While earnings will remain under pressure, investors should note that a higher interest rate environment and macro and geopolitical headwinds will hurt mortgage and investment banking fees.
Against this background, let’s see what Wall Street thinks of the banks slated to report Q3 earnings this week.
Is Citigroup a Good Stock to Buy?
Analysts are cautiously optimistic about Citigroup stock. Citigroup stock has received five Buy, nine Hold, and one Sell recommendations for a Moderate Buy consensus rating. Meanwhile, analysts’ average price target of $60.07 implies 44.4% upside potential.
Overall, Citigroup stock has an Outperform Smart Score of eight out of 10 on TipRanks.
Tailwinds from higher interest rates and efficiency savings will support revenue and earnings. However, the lower investment banking activity and the impact of inflation could remain a drag. Analysts expect Citigroup to report earnings of $1.48 per share in Q3, much lower than the prior-year EPS of $2.15.
Is JPMorgan a Buy?
JPM stock commands a moderate Buy consensus rating on TipRanks based on 10 Buy, six Hold, and one Sell recommendations. Meanwhile, these analysts’ average price target of $136.29 implies 29.8% upside potential. Also, JPMorgan stock has a maximum Smart Score of “Perfect 10.”
JPMorgan Chase raised its full-year NII outlook during the Q2 conference call, citing higher interest rates. It could increase its NII guidance further, given the increase in lending and the Fed’s hawkish stance. However, analysts expect JPM’s Q3 earnings to come in at $2.92 a share, significantly lower than the $3.74 reported in the prior-year period. Notably, the prior-year period benefitted from record-low provisions, which cushioned earnings.
What is the Price Target for WFC?
Analysts’ average price target of $53 on WFC stock implies 27.9% upside potential. Meanwhile, Wells Fargo stock has a Moderate Buy consensus rating on TipRanks based on 10 Buy, two Hold, and two Sell recommendations.
Wells Fargo stock has a Neutral Smart Score of seven out of 10 on TipRanks.
Notably, a rising interest rate environment will support net interest income growth, which the bank expects to offset the weakness in noninterest income. WFC’s provisions could increase compared to the prior year and pressure earnings. Meanwhile, lower investment banking fees could remain a drag.
Analysts expect WFC to deliver earnings of $1.10 per share in Q3, reflecting a year-over-year decline of about 6%.
Is MS a Buy or Sell?
Morgan Stanley stock has a Moderate Buy consensus rating on TipRanks based on nine Buys, five Holds, and one Sell recommendation. Further, analysts’ average price target of $94.46, implies 20.5% upside potential.
Further, MS stock has a Neutral Smart Score of five out of 10 on TipRanks. A weak macro environment and heightened volatility could hurt new issue activity and, in turn, take a toll on its investment banking revenues. Meanwhile, higher rates and continued lending growth will support net interest income.
Analysts expect Morgan Stanley to report earnings of $1.51 per share in Q3, compared to an EPS of $2.04 in the prior year.
The Takeaway
Banks could continue to witness an expansion in NII led by growth in loans and interest rates. However, lower investment banking activity could continue to remain a drag. Also, the uptick in the provision for credit losses and the impact of inflation will hurt Q3 earnings.
