Price Targets On Bank Stocks

It seems rational that if Citigroup came down from $50 that it can go to $10. John Paulson has a $28 price target on Bank of America. That's only half of its all time high. The problem is that at those prices each stock would trade at a $300 billion market cap. That is second only to ExxonMobil. The reason is because the companies have issued so many shares at lower prices.

Analysts have "normalized earnings" numbers on the shares that make these targets seem achievable. However, the models assume that banking will look similar to what it did during the building of the largest credit bubble in history. Not to mention the potential for further credit losses. That is a leap of faith and I believe the outlook is far more uncertain. To assume that these companies will grow to become the largest companies in the country, when they don't even earn a profit is more of a leap than I am willing to take.

4 comments:

nicasurfer said...

Bonds sure are selling off hard today. With the dollar gaining ground it would seem they would be stronger.

Anonymous said...

Yeah I don't think C is worth 88 billion intrinsically. The face of the game has changed and interest rates must go higher.

Tsachy Mishal said...

Citi will have a market cap of $108 billion if they issue $20 billion more at the current price.

PJ said...

I'm with you, short bank stocks is almost my only position now.