Investors aren’t holding their breaths as banks kick off the third-quarter earnings season in earnest Friday. However, analysts expect some names in the space to shine. Banks have suffered as interest rates linger at higher levels for longer, making the cost of borrowing money more expensive. A looming recession could also reduce loan demand and consumer spending as well as make it harder for borrowers to repay outstanding loans. Additionally, rising rates have lowered the value of existing bond holdings in banks’ balance sheets and forced them to pay higher rates to depositors, potentially squeezing margins. Investors such as Neuberger Berman’s Steve Eisman aren’t optimistic about the sector either heading into earnings season due to higher capital requirements . The financial sector has lagged the broader market year to date. The Financial Select Sector SPDR Fund is down 2.6% in 2023, while the S & P 500 has rallied nearly 14%. XLF YTD mountain XLF YTD chart Against this backdrop, we used the new CNBC Pro stock screener tool to search for stocks that could emerge as the winners this quarter. Here’s the criteria followed for the search: Average consensus analyst rating of buy. Average consensus upside is 10% or greater. Earnings per share have been growing at least 5% on average a year for the last three years, showing earnings consistency. Outperforming other financials, measured by screening for stocks down less than the 3% the Financial Select Sector SPDR Fund has shed in the last three months. KeyCorp has the most upside potential out of the three names on the list, with analysts expecting the Cleveland-based regional bank to surge 20% in the next 12 months. The stock has struggled this year, plunging more than 40%. Piper Sandler upgraded the bank to overweight from neutral in September, citing a better outlook for its net interest income trajectory and noting that the stock has already begun to recover its performance. KeyCorp is slated to report earnings Oct. 19. Also making the cut was PNC , another regional bank based in Pittsburgh. Average analyst consensus forecasts call for nearly 13% upside from Wednesday’s $122.74 close. Shares of the bank have slipped more than 22% from the start of the year. On Wednesday, Bank of America upgraded PNC to neutral from underperform, citing its strong capital positioning and an efficiency plan which should help keep expense growth in line next year. “Relative capital positioning a significant positive vs. peers, many of whom are having to reshape business models and shed loan portfolios in order to adjust to new capital/liquidity realities. This should offer PNC market share opportunities,” wrote analyst Ebrahim Poonawala. PNC is scheduled to report earnings Friday. JPMorgan also made the list, with the average analyst price target calling for close to 16% upside. Shares have climbed nearly 9% in 2023. The company’s third-quarter results are slated for release Friday before the bell.
