Andrew Bary

A broad, recent selloff has left many bank shares, among the least defensive groups in the stock market, looking inexpensive relative to earnings and book value.

That includes Bank of America, Citigroup, Goldman Sachs Group, and the investment bank Jefferies Financial Group. The Invesco KBW Bank exchange-traded fund has fallen about 25% from peak levels in response to concern over lenders' exposure to the economy and financial markets.

Bank of America got an upgrade Monday from Morgan Stanley analyst Betsy Graseck in an otherwise downbeat report. She cut her rating on the industry to In-Line from Attractive and lowered her forecasts for earnings, reducing her median calls for 2025 and 2025 profits by 4% and 8%, respectively. She cited economic concerns and a slower "normalization" of capital markets activity, including mergers and equity underwriting.

Graseck upgraded Bank of America stock to Overweight from Equal Weight, noting that it trades for just eight times her 2026 estimate. Bank of America shares, which were up 0.9% Monday to $34.70, also trade below the year-end 2024 book value of around $36 a share. She has a price target of $47.

The recent decline in Treasury yields will reduce paper losses on a key part of the bank's securities portfolio that topped $100 billion at year-end. Under CEO Brian Moynihan, the bank has pursued a strategy of "responsible growth" and has maintained some of the highest loan quality among its peers.

Citigroup shares, which were down 1% Monday to $57.60, have been hit hard lately. The stock is down 33% from its February peak of $85.

"With Citi, there's a Pavlov's dog's response from investors. When there's a crisis, sell Citi," said Wells Fargo analyst Mike Mayo, who has made the bank his top pick for 2025.

Among the top banks, Citigroup has the weakest standing among investors due to low returns and periodic missteps. The stock now trades for little more than half its year-end 2024 book value of $101 a share. It sells for less than eight times Mayo's forecast for 2025 earnings per share.

One of Citigroup's best businesses is its industry-leading global corporate cash management operation. "Citi is moving money around 100 countries. Clients need them more than ever now," Mayo said. He thinks the bank's restructuring efforts have created a better, more focused business mix that can yield higher returns.

Goldman Sachs was off 1.7% to $462.85 Monday, meaning it is down 30% from its February peak of $672. Since the bank went public in 1999, it has often paid off to buy Goldman at near book value and sell it at twice book. The shares were at twice book value at the February high.

Goldman now trades for a more reasonable 1.4 times year-end 2024 book value of $337 a share. There is little goodwill and other intangibles in its shareholder equity, meaning it has a very solid book value.

Graseck downgraded Goldman to Equal Weight from Overweight, noting that it is the "most exposed large cap bank to investment banking revenues, which we view as having the fastest twitch response within the financial sector to recession risk and deteriorating market conditions."

She cut her 2025 earnings estimate to $42.71 a share from about $46. Goldman, she projects, will earn a 12% return on equity this year, below a medium-term target of 14-16%.

A positive is that Goldman's trading revenues could offset some weakness in investment banking this year. The stock now trades for about 11 times this year's expected earnings.

Jefferies Financial Group, the investment bank, has rapidly fallen from favor this year, sending its stock down nearly 50% from its January high to $42.10. The shares are near where they traded in 2021, changing hands below their recent book value of close to $50 a share.

With a market value of just $9 billion, Jefferies likely doesn't benefit from any possibility that the government would bail it out as "too big to fail" if it ran into trouble. It has operated prudently over the years, limiting its risk.

Coming into 2025, Jefferies' returns to shareholders were best in class among its peers. Longtime CEO Rich Handler, who brings an owner's mentality to the bank, owns around $700 million of stock in his firm, more than many of his peers hold. He holds an 8% stake in the company, among the highest percentages in the industry.

Barron's highlighted industry leader JPMorgan Chase as a defensive choice for bank-stock investors in an article this weekend. Its shares were up 2.6% to $215.77 Monday, and trade at a premium to its peers at around twice year-end 2024 book value.

With JPMorgan, investors get the industry's top CEO in Jamie Dimon, a deep management team and what Dimon regularly calls a "fortress balance sheet."

Write to Andrew Bary at andrew.bary@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 07, 2025 15:53 ET (19:53 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.