Setting the Stage
The recent decision by the Federal Open Market Committee to hold firm on interest rates and the indications of future rate cuts in 2024 have boosted expectations for better times ahead for banks.
Earlier this year, the failures of Silicon Valley Bank and Signature Bank of New York were a result of the rapid rise in interest rates and increasing deposit costs faced by these banks. First Republic Bank, focused on serving high-net-worth clients, also faced challenges due to its large portfolio of low-interest loans and paper losses on its securities portfolio.
However, analysts believe that these historical events will have a lesser impact on bank stocks in the future due to expectations of falling deposit costs and the stock market’s positive reaction to the Fed and economic developments.
KeyCorp of Cleveland has seen its shares decline by 18% this year, but there has been a recent surge of 37% in the past two months. The bank offers an annual dividend payout of 82 cents per share, resulting in a dividend yield of 5.73%.
Industry experts believe that KeyCorp’s earnings will significantly improve in the coming years due to a decrease in balance sheet costs. The bank’s focus on reducing expenses, including potential layoffs, combined with a favorable interest-rate environment and opportunities in capital markets, may lead to higher earnings in 2024.
Analysts’ Outlook
Analysts have a positive outlook on KeyCorp, with estimated earnings per share above the consensus. Odeon Capital analyst Richard Bove rates KeyCorp as a buy with a 12-month price target of $15.45, stating that the bank will make major operating adjustments and that its earnings will likely increase.
Truist Financial Corp., formed through a merger between BB&T Corp. and SunTrust, has seen its stock fall by 17% this year, but it has experienced a 29% rise in the past two months. The bank offers a quarterly dividend of 52 cents per share, resulting in a dividend yield of 5.67%.
Truist has faced capital concerns and a low net interest margin due to adding duration at the wrong time. However, the completion of a deal to sell its insurance-brokerage business could improve the bank’s capital ratios and earnings estimates for 2024.
Analysts’ Recommendations
While there is room for improvement, analysts have a positive outlook for Truist. Despite current share prices being above the analysts’ price targets, improvements in earnings and capital ratios could drive the stock price higher.
Despite some market uncertainties, experts remain optimistic about capital markets in the coming year. Goldman Sachs, with shares trading at $380.51 and up 11% in 2023, could be an attractive investment opportunity. The bank offers a quarterly dividend of $2.75 per share, resulting in a yield of 2.89%.
Goldman Sachs has a lower valuation to book ratio compared to its archrival, Morgan Stanley. This, along with its strategic restructuring efforts, including the exit from consumer-lending and a reduction in the balance sheet size, could position the bank for future success.
In conclusion, bank stocks have the potential for strong performance in 2024. KeyCorp, Truist, and Goldman Sachs are all positioned to capitalize on future opportunities and could provide attractive returns for investors.