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Morgan Stanley updates its share price targets for the big 4 banks

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Broker Morgan Stanley has updated its price targets for the big 4 banks following the quarterly reporting season. 

The banks have been standout performers among the S&P/ASX 200 Index (ASX: XJO) and a driving force behind the recent 9-month high for the index. 

Big 4 bank price updates 

The Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price target was raised from $19.40 to $21.90 with an overweight rating. The ANZ share price has been the best performing big four bank in the last week, running more than 6%. Its share price is currently just above the target price at $21.95. 

The Commonwealth Bank of Australia (ASX: CBA) share price target was raised from $62.00 to $68.50 and retains an underweight rating. The CBA share price is currently $77.03 or 12.5% higher than the price target. 

The National Australia Bank Ltd (ASX: NAB) share price target was raised from $17.50 to $20.10. Despite the price upgrade, its rating was downgraded from equalweight to underweight. Morgan Stanley believes that the company’s recovery will likely lag its rivals. The NAB share price is currently 10% higher than the price target at $22.28. 

The Westpac Banking Corporation (ASX: WBC) share price target was unchanged at $17.00. Its rating was upgraded from equalweight to overweight. The broker anticipates that the bank will continue to sell off its non-core assets. The Westpac share price is currently $19.38 or 14% higher than the broker target price. 

More broadly speaking, the broker expects a rebound in dividends in FY21. However, the recovery in earnings will likely take longer. It believes loan losses may also surprise to the upside. 

What do the economic indicators say?

A range of economic indicators suggest that the worst may be behind us. These include: 

  • The Westpac-Melbourne Institute index of consumer sentiment has reached a 7-year high of 107.7, up 11% compared to a year ago 
  • NAB’s business confidence index has jumped to an 18-month high
  • CoreLogic notes that house auction clearance rates are at the highest preliminary clearance rate since 1 March
  • Bank loan deferrals have been consistently falling 

The recent interest rate cut to 0.10% and the guarantee of rates remaining low for at least 3 years will give home buyers and businesses confidence moving forward. 

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Returns As of 6th October 2020

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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