Leading U.S. banks, including Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), and Wells Fargo (NYSE:WFC), will release their third-quarter financial results on Friday, October 13, 2023. While an elevated interest rate environment will support NII (net interest income) growth, higher funding costs could exert downward pressure on earnings in Q3.
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Key Trends to Look Out For in Q3
These top banks will likely benefit from higher interest rates and loan balances. However, net reserve build and higher deposit costs are likely to hurt earnings. Providing the Q3 outlook, Wedbush analyst David Chiaverini said, “We expect another underwhelming quarter for banks given the macro backdrop, but downward revisions to NII guidance should be less severe in 3Q compared to 2Q/1Q.” In addition, the analyst believes that the higher deposit costs could pose challenges for banks.
Nonetheless, the analyst expects deposits to stabilize in Q3. Further, Chiaverini anticipates the credit metrics to remain solid in the third quarter.
Surprisingly, Goldman Sachs analyst Richard Ramsden expects that the third quarter will mark a recovery in capital markets activity, supporting these banks’ earnings in 2024. While the analyst expects most banks to post negative operating leverage, he remains constructive on JPM and WFC stocks.
With this backdrop, let’s understand what the Wall Street analysts recommend about JPM, C, and WFC stocks ahead of their Q3 earnings.
Is JPM a Good Stock to Buy Now?
JPMorgan Chase is anticipated to see a positive impact on its net interest margin from higher average interest rates and average loan balances. Further, slower deposit repricing across consumer and wholesale segments will support the net interest margin. However, competition to drive deposits could play spoilsport.
Analysts expect JPM to post earnings of $3.95 per share in Q3 compared to an EPS of $3.12 in the prior-year quarter. Ramsden believes that JPM could deliver a positive surprise with its Q3 results, reflecting revenue synergies from the FRC deal. The analyst reiterated a Buy rating on JPM stock on October 1.
Overall, JPMorgan Chase stock sports a Moderate Buy consensus rating ahead of Q3 print. It has received 15 Buy and six Hold recommendations. Moreover, analysts’ average price target of $171.04 implies 17.03% upside potential from current levels.
Is Wells Fargo Stock a Buy or Hold?
Wells Fargo could continue to grow revenue, led by higher average loan balances and elevated net interest rates. Further, the company is addressing regulatory issues well and controlling costs, which augurs well for future growth. Additionally, the bank continues to repurchase stocks, which could support its earnings per share.
Wall Street expects Wells Fargo to post earnings of $1.24 per share in Q3, much higher than earnings of $0.85 in the prior-year quarter. Ramsden maintained a Buy on WFC stock ahead of Q3 earnings and expects it to benefit from better margin trends and operating leverage.
Wells Fargo stock has received 11 Buy and nine Hold recommendations for a Moderate Buy consensus rating. Meanwhile, analysts’ average price target of $48.62 implies 22.50% upside potential from the current level.
What is the Future of Citigroup Stock?
Citigroup is anticipated to benefit from growth in net interest income in Q3. Nonetheless, the decrease in non-interest revenues may continue to exert downward pressure. Bank of America Securities analyst Ebrahim Poonawala lowered Citigroup’s price target to $50 from $60 on October 10.
While the analysts kept a Buy rating on Citigroup stock, he expects the slowing loan growth, softness in NII, and lower fee income to hurt the bank’s financials.
Overall, Wall Street analysts expect Citigroup to post earnings of $1.23 per share in Q3, down from $1.63 in the prior-year period. Further, Citigroup stock has a Moderate Buy consensus rating, reflecting seven Buy, 11 Hold, and one Sell recommendations. These analysts’ average price target of $50.32 implies 21.17% upside potential from current levels.
Bottom Line
These large banks could continue to benefit from higher net interest rates, a focus on increasing earnings, and a strong balance sheet. However, competition to drive deposits, higher funding costs, slow recovery in the investment banking domain, and macro uncertainty keep analysts cautiously optimistic about their prospects ahead of Q3 earnings.
