The banking sector is showing signs of stability after the recent failures of three regional banks. The FDIC reported that U.S. banks lost $472 billion in deposits in the first quarter. However, the banking sector is expected to benefit from the higher interest rates as the Fed is likely to start cutting rates next year. Higher interest rates would mean higher net interest income for the banks.
Amid this backdrop, it could be wise to add banking stocks JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), and Wells Fargo & Company (WFC) to one’s watchlist.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the banking industry.
Major U.S. banks, like JPM, BAC, and WFC, performed well in the second quarter, reporting higher-than-expected revenue and earnings. The rise in interest rates boosted their net interest income, but the investment banking segment suffered due to fewer deals. However, deal-making is expected to improve in the year's second half.
The Federal Reserve will likely raise the benchmark interest rate again in September, which is good news for banks as it can boost their profits. However, challenges such as lower consumer spending, slower loan growth, increased deposit costs, and stress in the commercial real estate sector pose concerns for the banking industry.
Investors are showing interest in the banking industry, as is evident from the Invesco KBW Bank ETF’s (KBWB) 22% growth over the past three months.
Let’s take a closer look at the fundamentals of the featured stocks.
JPMorgan Chase & Co. (JPM)
JPM operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM).
In terms of forward non-GAAP P/E, JPM's 9.81x is 0.2% lower than the industry average of 9.83x.
JPM’s total net revenue reported for the second quarter ended June 30, 2023, increased 34.5% year-over-year to $41.31 billion. Its net income rose 67.3% year-over-year to $14.47 billion. In addition, its EPS came in at $4.75, representing an increase of 72.1% year-over-year. Its return on common equity (ROE) was 20%, compared to 13% in the year-ago period.
Analysts expect JPM’s EPS and revenue for the quarter ending September 30, 2023, to increase 22.5% and 20.4% year-over-year to $3.82 and $39.37 billion, respectively. It surpassed the consensus EPS estimates in each of the four trailing quarters. Over the past year, the stock has gained 38.9% to close the last trading session at $156.02.
JPM’s POWR Ratings are consistent with its fundamentals. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It has a C grade for Growth, Value, Momentum, Stability, and Quality. It is ranked #3 out of 10 stocks in the Money Center Banks industry. To see JPM’s Sentiment rating, click here.
Bank of America Corporation (BAC)
BAC provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide.
On June 27, 2023, BAC announced it would expand its financial center network into nine new markets over four years, reaching 200+ markets in 39 states. More services for clients and communities. BAC’s CEO, Brian Moynihan, said, "As part of our high tech and high touch approach, we continue to invest in digital capabilities and to modernize our financial centers to reach more clients and meet their evolving needs."
Brian Moynihan expects that by expanding BAC's capabilities in the new markets, they will be able to provide improved service to clients and contribute to the growth and development of local communities.
On May 10, 2023, BAC opened a new branch in Luxembourg to enhance capabilities for clients in core markets. It will support clients with local bank accounts and transaction banking products. Focus on serving NBFIs, given Luxembourg's prominence in the investment fund industry.
In terms of forward non-GAAP P/E, BAC's 9.23x is 6.1% lower than the industry average of 9.83x. Likewise, its 1.17x forward non-GAAP PEG is 10.3% lower than the industry average of 1.30x. Also, its 0.94x forward Price/Book is 12.2% lower than the 1.07x industry average.
For the second quarter ended June 30, 2023, BAC’s total revenues increased 11% year-over-year to $25.20 billion. Its net income applicable to common stockholders rose 19.7% year-over-year to $7.10 billion. Additionally, its EPS increased 20.5% year-over-year to $0.88. Also, its net interest income rose 13.8% over the prior-year quarter to $14.16 billion.
Street expects BAC’s EPS and revenue for the quarter ending September 30, 2023, to increase 0.1% and 2.6% year-over-year to $0.81 and $25.13 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 16% to close the last trading session at $31.30.
It has an overall rating of C, which translates to Neutral in our proprietary rating system.
It is ranked first in the same industry. It has a C grade for Growth, Stability, Sentiment, and Quality. Click here to see BAC’s ratings for Value and Momentum.
Wells Fargo & Company (WFC)
WFC, a diversified financial services company, provides banking, investment, mortgage, and consumer and commercial finance products and services in the United States and internationally. It operates through four segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management.
In terms of forward P/E, WFC's 9.26x is 5.7% lower than the industry average of 9.83x. Likewise, its 0.69x forward non-GAAP PEG is 46.9% lower than the industry average of 1.30x. Its 0.98x forward Price/Book is 8.4% lower than the industry average of 1.07x.
WFC’s total revenue for the second quarter ended June 30, 2023, increased 20.5% year-over-year to $20.53 billion. Its net income rose 57.2% year-over-year to $4.94 billion.
Its EPS came in at $1.25, representing an increase of 66.7% year-over-year. Its ROE came in at 11.4%, compared to 7.2% in the prior-year quarter. Also, its net interest income rose 29% year-over-year to $13.16 billion.
For the quarter ending September 30, 2023, WFC’s revenue is expected to increase 2.7% year-over-year to $20.03 billion. Its EPS for the same quarter is expected to decline 5.1% year-over-year to $1.23. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 22.1% to close the last trading session at $44.85.
The stock has an overall rating of C, which translates to Neutral in our proprietary rating system.
It has a C grade for Growth, Value, Momentum, Stability, and Quality. It is ranked #2 in the Money Center Banks industry. To see WFC’s rating for Sentiment, click here.
43 Year Investment Pro Shares Top Picks
Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…
Steve Reitmeister’s Trading Plan & Top Picks >
JPM shares were trading at $157.29 per share on Monday morning, up $1.27 (+0.81%). Year-to-date, JPM has gained 19.90%, versus a 18.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
3 Bank Stocks Investors Should Watch Like a Hawk This Week StockNews.com
