Bank of America or Citi? Analysts say one stock is set to soar 50%

Published Thu, Apr 20 202310:46 PM EDT

Big banks just had a busy earnings week, and a few beat expectations. Two of them were Citi and Bank of America , both of which exceeded forecasts on revenue and other metrics. "There are expectations for greater regulatory oversight given SIVB's failure, but large banks are well prepared and we do not expect sizeable changes for them. Smaller banks will likely bear the brunt of additional regulatory scrutiny," said Stephen Biggar, director of financial institutions research at Argus Research. Since the start of the banking crisis, Bank of America is still down less than 1% and more than 8% down in the year to date, while Citi has clawed back some losses, rising more than 4% and up 12% in the year to date. The following table shows some key metrics, including how well capitalized the two banks are, their profitability, and the nature of their deposits. CNBC Pro takes a look at what analysts are saying about the two banks, which are among the largest in the United States. Bank of America: 'Superior resiliency' Bank of America continues to demonstrate a "Goliath is Winning" theme, Wells Fargo said in an April 18 note. "Its 1Q23 EPS exceeded consensus by 13% with superior resiliency in its business model, balance sheet, and funding," wrote Wells Fargo analysts led by Mike Mayo. The bank's earnings came in at 94 cents per share, above Wall Street's estimate of 82 cents, according to Refinitiv. Deposits at the bank were down 2%, Wells Fargo said. But it added that the bank has "deposit stickiness" and highlighted the change in its level of deposits, saying, "The bigger picture is that BAC has the lowest cycle-to-date beta (est. 30%) on its $1.3tn of interest bearing deposits." The issue of uninsured deposits has come under the spotlight since the collapse of Silicon Valley Bank, whose uninsured deposits exceeded the Federal Deposit Insurance Corporation's guaranteed limit. Wells Fargo also noted that Bank of America's capital market revenue rose 1% year on year and 30% quarter on quarter, beating its peers. Wells Fargo gave Bank of America a price target of $45, or potential upside of nearly 50% from Wednesday's close. Biggar of Argus Research said he prefers Bank of America to Citi, though he gave both a "buy" rating. "I like BAC's broad diversification, which helps smooth out periods of weakness in some business lines depending on the environment, " he told CNBC Pro. "The lending business is currently the driver, while investment banking has been weak. Trading has been a greater driver of revenues, as has their very large credit card business." Citi: 'More of a turn-around story' Citi's earnings per share beat estimates by 13%, given better-than-expected net interest income, fees and expenses, and almost one-third of growth year on year in its Treasury and Trade Solutions unit, which "we view as Citi's most premium business," Wells Fargo analysts wrote. That unit is a division of Citi's institutional clients group and offers cash management and trade finance services. "At the start of earnings, we sense that a differentiator will be those banks like Citi which show both higher [average] deposits (slightly higher QoQ) and [net interest income] (+1%), including [net interest margin] NIM (up 2bp)," the analysts said. Wells Fargo gave Citi a price target of $62, or potential 24% upside from Wednesday's close — smaller than the upside it gave Bank of America. Biggar said Citi is "more of a turn-around story." "They lag peers on several financial metrics including [return-on-equity] and efficiency, but under the new CEO are making wholesale changes to improve financials, including closing down many far-flung international operations that were not strategic and often added volatility to the earnings stream," he told CNBC Pro.