Seeking Alpha
Profile| Send Message|
( followers)  

Despite improving domestic employment figures, investors still remain on the sidelines over financials. I have been bullish on the sector for some time now and believe that the risk will dissipate when greater macro activity kicks in and subsequently buoys up the capital markets. The Street is currently very bullish about JPMorgan (NYSE:JPM) and Invesco (NYSE:IVZ), but reserved about Goldman Sachs (NYSE:GS). I similarly find the weakest upside at Goldman Sachs.

From a multiples perspective, Invesco is the cheapest of the three. It trades at a respective 8.4x and 7x past and forward earnings with the strongest dividend yield at 2.7%. Goldman Sachs and Invesco trade at a respective 8.5x and 11.2x forward earnings. On the other hand, Invesco is 80% more volatile than the broader market, which tops both Goldman Sachs and JPMorgan.

Invesco had strong fourth quarter performance across the board with net flows improving despite volatile markets. The firm closed the quarter with an impressive $625.3 billion in assets under management, which represented a 4.5% sequential growth. Consensus estimates for Invesco's EPS forecast that it will grow by 9.5% to $1.84 in 2012 and then by 16.8% and 8.8% in the following two years. Assuming a multiple of 14x and a a conservative 2013 EPS of $2.10, the rough intrinsic value of the stock is $29.40, implying 22% upside.

While Invesco is rated near a "strong buy" on the Street, JPMorgan is rated a "strong buy". NIM has still come under pressure and spreads are narrowing, but loan growth and deposit trends are still positive. Consensus estimates for JPMorgan's EPS forecast that it will grow by 4.2% to $4.67 in 2012 and then by 15% and 9.1% in the following two years. Assuming a multiple of 9.5x and a conservative 2013 EPS of $5.29, the rough intrinsic value of the stock is $50.26, implying 33.6% upside.

Goldman Sachs, as stated earlier, is thought to have the lowest upside. It is most vulnerable of the three to financial regulation, particularly in regard to derivatives trading and leverage. With that said, the firm has limited exposure to GIIPS for sovereign investment, which is not being fully appreciated by the market as a mechanism to reduce risk. Consensus estimates for Goldman Sachs' EPS forecast that it will grow by 155% to $11.50 in 2012 and then by 16.3% and 10.4% in the following two years. Assuming a multiple of 9.5x and a conservative 2013 EPS of $13.12, the rough intrinsic value of the stock is $124.64, implying 9.2% upside.

Source: JPMorgan Upside Bests Invesco, Goldman Sachs