Spencer Platt/Getty Images News
HSBC upgraded Citigroup (NYSE:C) to Buy from Hold and downgraded Morgan Stanley to Hold from Buy as it takes stock of U.S. banks and brokers ahead of Q4 earnings releases.
For banks overall, "moderating deposit cost pressures should help net interest income bottom in H1 2024 and a softening of the Basel III endgame proposal could allow for more share buybacks in 2025," analyst Saul Martinez wrote in note to clients.
At Citi (C), he sees expanding return on equity/return on tangible common equity enhancing management credibility. That's likely to trigger price-to-book value and price-to-tangible book value multiple expansion even as book value per share and tangible book value per share increase in mid- to high-single digits.
"Cost optimization opportunities exist and a softening capital proposal should allow for more buybacks," Martinez added.
For Morgan Stanley (NYSE:MS), he sees a less rosy outlook for the firm's wealth management revenue. Lower EPS estimates combined with a higher stock price (shares have risen ~18% in the past three months) have led to a material increase in valuation. Though HSBC increased its price target on MS to $96 from $90, it sees limited upside for the stock.
Goldman Sachs (GS) remains HSBC's pick for playing a capital markets recovery.
Martinez's Hold rating on Morgan Stanley (MS) aligns with the SA Quant rating of Hold and diverges from the average Wall Street rating of Buy. The average SA Analyst rating also stands at Buy.
His Buy rating on Citi (C) contrasts with the SA Quant rating of Hold and agrees with the average Wall Street rating and the average SA Analyst rating.
Morgan Stanley (MS) stock slipped 0.7% in Tuesday premarket trading, while Citi (C) edged up 0.2%.