In afternoon trade the S&P/ASX 200 Index (ASX: XJO) is back on form and on course to record a solid gain. At the time of writing the benchmark index is up 0.5% to 6,721.3 points.
One area of the market that has been doing a lot of the heavy lifting today has been the banking sector. At the time of writing, all the big four banks are trading higher and are underpinning the ASX 200’s gains.
Why are bank shares climbing higher today?
Today’s gains appear to have been driven by a positive broker note out of Morgan Stanley.
According to the note, the broker believes the banking sector’s outlook is improving and expects the market to begin to price in a recovery in earnings and dividends as the year progresses.
After which, it suspects that next year the banks could be looking at capital management initiatives given the excess capital they built up during the pandemic.
In light of this and the fact that their valuations are still below their pre-COVID-19 levels, the broker sees upside for the big four banks’ shares in 2021.
How does it rate the big four banks?
In alphabetical order, here’s how Morgan Stanley currently rates the big four:
The broker has an outperform rating and $28.00 price target on Australia and New Zealand Banking GrpLtd (ASX: ANZ) shares. It is expecting a 98 cents per share dividend in FY 2021 and then a $1.27 dividend in FY 2022.
Morgan Stanley is less positive on Commonwealth Bank of Australia (ASX: CBA) and has a neutral rating and $82.00 price target on the shares of Australia’s largest bank. It is forecasting a $2.50 per share dividend this year and then a $2.88 per share dividend year next year.
Its analysts see value in the current National Australia Bank Ltd (ASX: NAB) share price and have an outperform rating and $26.00 price target. The broker is forecasting an 88 cents per share dividend in FY 2021 and a $1.06 per share dividend next year.
Finally, the broker also thinks that the Westpac Banking Corp (ASX: WBC) share price is in the buy zone. It has an outperform rating and $22.50 price target on its shares. Morgan Stanley is forecasting an 86 cents per share dividend in FY 2021 and then a $1.08 per share dividend in FY 2021.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.