Buckingham Research Group analyst James Mitchell sees better value and greater potential upside in brokers from a rebound in capital markets activity in 2020, compared to the outlook for banks.
In a recent research note, Mitchell upgraded Goldman Sachs Group Inc. and downgraded Northern Trust Corp.
The analyst wrote that Goldman Sachs' stock may be undervalued, given its 8% decline over the past two years compared to its peers' average upside of 14%.
The upgrade also considers receding risks for the company after significant restructuring and improving results. Mitchell also found recent reports that Goldman Sachs is close to a settlement over the 1Malaysia Development Berhad fund scandal at a cost of $2 billion to be encouraging.
Mitchell upgraded Goldman Sachs to "buy" from "neutral" and raised the price target to $290 from $219. His EPS estimates are $21.70 for 2019 and $23.95 for 2020.
The analyst's downgrade on Northern Trust to "neutral" was a valuation call, since the company outperformed its peers by 18 percentage points over the past two years, he wrote.
Mitchell added that Northern Trust's unique client mix in asset servicing keeps it relatively immune to pricing pressure in the industry. At only one-third the size of its peers, Mitchell sees "plenty of runway" for further above-average organic growth for the company, making it attractive to long-term investors.
The analyst raised the price target to $115 from $112. His EPS estimates are $6.62 for 2019 and $7.20 for 2020.