Selected stock price target news of the day - July 18, 2023

By Matthew Otto

Bank of America’s Bond Portfolio Losses Highlighted Ahead of Q2 Earnings

Bank of America is expected to release its second-quarter earnings report, with one key figure likely hidden in the financial supplement: the size of the loss on its significant bond portfolio. The held-to-maturity securities, consisting mainly of mortgage securities, suffered a $99 billion loss on a $625 billion Bond portfolio as a result of the drop in the bond market since their purchase at historically low interest rates in 2020 and 2021. This loss is higher than those experienced by Bank of America’s peers, such as JPMorgan Chase and Wells Fargo.

Although banks are not required to reflect losses on held-to-maturity securities in their capital positions, the economic losses incurred by Bank of America are significant and represent a portion of its tangible equity. While the bank believes that the held-to-maturity portfolio will eventually recover as the securities mature, the average yield of the portfolio is currently 2.6%, half the current market rate. This could potentially impact the bank’s net interest margins as deposit costs rise.

Analyst Mixed Ratings and Revised Price Targets for Bank of America

Morgan Stanley analyst Betsy Graseck maintains an Equal-Weight rating and raises her price target from $32 to $33.
RBC Capital analyst Gerard Cassidy reiterates an Outperform rating and a $35 price target.

Analyst Gerard Cassidy (RBC) currently has the highest performing score on BAC with 14/20 (70%) price target fulfillment ratio. His price targets carry an average of $5.12 (31.67%) potential upside. Bank of America stock price reaches these price targets on average within 888 days.

Morgan Stanley’s Strong Q2 Earnings Fueled by Record Wealth Management Results

Morgan Stanley reported second-quarter earnings and revenue that exceeded analysts’ expectations. Earnings per share were $1.24, higher than the estimated $1.15 per share. The company’s revenue reached $13.46 billion, surpassing the expected $13.08 billion. Despite a 13% decline in profit compared to the previous year, the bank’s steady focus on wealth management has helped maintain its earnings and boosted its valuation relative to peers.

Morgan Stanley’s wealth management division performed well in the second quarter, with revenue rising by 16% to $6.66 billion. This growth was primarily driven by higher interest income and the division attracted $90 billion in net new client assets, exceeding estimates. However, the bank’s Wall Street division, specifically the institutional securities business, experienced an 8% decline in revenue to $5.65 billion due to decreases in trading activity. Equities trading generated $2.55 billion in revenue, surpassing estimates, while fixed income revenue amounted to $1.72 billion, falling short of expectations.

Mixed Analyst Recommendations for Morgan Stanley as Price Targets are Adjusted

Odeon Capital analyst Dick Bove upgrades from Hold to Buy and sets a $94 price target.
JP Morgan analyst Kian Abouhossein maintains an Overweight rating but lowers the price target from $97 to $91.
Citigroup analyst Keith Horowitz reiterates with a Neutral rating and reduces the price target from $95 to $90.

Analyst Whit Mayo (LEERINK) currently has the highest performing score on MS with 2/2 (100%) price target fulfillment ratio. His price targets carry an average of $4.55 (5.47%) potential upside. Morgan Stanley stock price reaches these price targets on average within 145 days

Goldman Sachs Revises Down Odds of U.S. Recession, Cites Positive Economic Activity

Goldman Sachs has revised the probability of a U.S. recession in the next 12 months to 20% from 25% due to positive economic activity and better-than-expected economic data. The chief economist, Jan Hatzius, mentioned that recent data have reinforced their confidence that a recession is not necessary to bring down inflation to an acceptable level. Factors such as resilient U.S. economic activity, a rebound in consumer sentiment, and a decrease in unemployment levels contribute to Goldman Sachs’ optimism.

The U.S. economy expanded at a rate of 2.3% in the second quarter, and initial jobless claims fell to 239,000 for the week ending June 24, surpassing estimates. June’s core inflation, excluding food and energy, rose at the slowest pace since February 2021, indicating a potential easing of consumer price rises. While there may be some deceleration in subsequent quarters due to slower real disposable personal income growth, Goldman Sachs believes that the U.S. economy will continue to grow, albeit at a below-trend pace, supported by factors such as favorable financial conditions, a rebounding housing market, and ongoing growth in factory building.

Despite expecting a 25 basis point hike from the Federal Reserve’s upcoming meeting, Goldman Sachs’ chief economist suggests it could mark the end of the current cycle of interest rate increases.

Analysts Provide Mixed Recommendations for Goldman Sachs Group

Odeon Capital analyst Dick Bove upgrades from Hold to Buy with a $355.75 price target.
Societe Generale analyst Andrew Lim downgrades from Buy to Hold.
JMP Securities analyst Devin Ryan maintains a Market Outperform rating and lowers the price target from $470 to $450.
JP Morgan analyst Kian Abouhossein reiterates an Overweight rating and lowers the price target from $415 to $398.

Analyst Betsy Graseck (MORGAN STANLEY) currently has the highest performing score on GS with 6/11 (54.55%) price target fulfillment ratio. Her price targets carry an average of $39.19 (11.81%) potential upside. Goldman Sachs stock price reaches these price targets on average within 35 days