Citi stays 'overweight' European banks; HSBC, Intesa and NatWest 'top picks'

(Sharecast News) - Citi highlighted HSBC, Intesa and NatWest as its top picks in the banking sector on Friday as it maintained its 'overweight' rating on European banks. "Valuations are starting to look more stretched versus history but still look cheap versus other sectors and an all-in capital return yield of circa 8% is still highly attractive," the bank said.

It said relative earnings momentum is particularly healthy, with 8% consensus earnings per share upgrades year-to-date, driven by non-NII & costs, whereas other European sectors are still suffering downgrades.

"While this divergence continues, we expect sector rotation to persist," it said.

Naming its top picks, Citi said it prefer to own names that are "yet to re-rate as sharply as peers, and offer EPS upgrade potential and attractive yields".

For its least preferred stocks - Deutsche Bank, SHB and UBS - Citi said it had focused on names that have re-rated too quickly, or have weaker EPS momentum and where it sees future downside risk to consensus EPS estimates.