Deutsche Bank’s Bianco lifts S&P 500 target, but Citi’s wary


While the S&P 500 SPX was pulling back on Monday, its upwards and upwards bias has proven too much for some Wall Street strategists to resist, as their end-year targets turn to dust.

In what could be the first of many target rethinks, Deutsche Bank strategist David Bianco and his team on Monday lifted their S&P end-targets for this year and next, and introduced a fresh 2016 target. In short, Bianco says if nominal long-term real interest rates stay below normal, which he thinks they will, price/earnings targets can stay above normal. Here’s his criteria, laid out by year:

2014 S&P target 2050 (from 1,850), trailing price/earnings of 17:

  1. 2015-2016 earnings-per-share growth of more than 5%, dividend per share (DPS) growth of more than 10%
  2. Fed stops purchases and 10-year Treasury yield 10_YEAR below 3% end 2014
  3. Midterm elections result in small Republican majority in Senate

2015 S&P target 2,150 (from 2,000), 17 p/e:

  1. EPS growth outlook stays over 5% and dividend-per-share (DPS) growth under 10%
  2. Fed hikes slowly, 10 year Treasury yield below 3.5%, 10 year TIPS 0.5% to 1.5%
  3. Oil CLV4 under $90 a barrel
  4. Strong banks DPS growth, with less litigation, manageable capital rules

2016 S&P target 2,300, 16 to 18 p/e:

  1. Recession stays at bay
  2. Fed rate hikes stop 2-3% on low inflation despite good growth, 10-year Treasury yield under 4%, TIPS yield around 1.5%
  3. Lower repatriation taxes sustain strong DPS growth

Deutsche Bank expects around 6% EPS growth in 2015-2016 and 15% DPS growth, with 2014, 2015 and 2015 EPS estimates of $119, $126 and $134, respectively. But Bianco also says correction risks are “significant” for markets, as stocks have yet to confront 10-year Treasury yields above 3% (likely next year, he says) and lower oil prices via a China slowdown are also a threat.  Oil prices fell sharply on Monday due to jitters over sluggish China trade data.

Bianco wasn’t the only one on Wall Street making changes. Citi’s chief U.S. equity strategist Tobias Levkovich, lifted his S&P 500 EPS estimates for 2014 to $119.25 from $118.20 and 2015 to $127.50 from $126.70, in  note dated September 5. And assuming multiples stay flattish, he expects a 2,100 target for the S&P 500 by the end of June 2015, up from a prior call of 2,050.

But Levkovich plays it more cautious where this year is concerned. He said, the S&P 500 could overshoot his year-end 2014 target of 2,000, but warned that such a rise could set investors up for a correction later. He said he’s “wary of chasing the market now, especially after a 6% gain since late April.”

Not to be left out, Goldman Sachs, also in a Sept. 5 note, lifted global equities to overweight (and cut cash to neutral) on a three-month basis from a prior rating of neutral, saying the risk to stocks from higher bond yields is less imminent. As part of that, Goldman’s 3-month S&P 500 target is up to 2,050 from 2,000 in a July note. The 6-month and 12-month targets are 2,075 and 2,150, from 2,050 and 2,075, respectively.

Barbara Kollmeyer



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