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Nomura Sees Banks Upside, Wells NYSE:WFC, US Bank NYSE:USB and more

WFC, USB, PNC, FRF, STI, FITB, KEY, CMA, HBAN

Nomura Equity Research initiated coverage of 9 large banks Tuesday putting “buy” recommendations on Wells Fargo & Co, U.S. Bancorp, PNC Financial Services Group Inc, and Regions Financial Corp.

SunTrust Banks Inc., Fifth Third Bancorp, KeyCorp , Comerica Inc and Huntington Bancshares Inc. are rated “neutral.”

None of the 9 have significant capital-markets operations but they all 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 said it expects Wells Fargo, PNC and US 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 wrote in his research report.

The shares of all 9 banks have risen last year and so far in Y 2013, as have the shares of most banks.

So far in Y 2013 Wells Fargo and US Bancorp have lagged behind their rivals. The 2 made it through the Y 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 US 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 $.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%, t $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 US Federal Reserve to allow banks to increase share buybacks and dividend increases, and Mr. Murray said Wells Fargo, US Bancorp, Regions, Comerica and KeyCorp are well positioned for capital returns.