The U.S. banking industry seems to be transitioning its focus to a longer-term concern centered around economic growth. Hence, it could be wise to look beyond national borders and invest in fundamentally sound foreign bank stocks, Barclays PLC (BCS), Erste Group Bank AG (EBKDY), and Grupo Financiero Galicia S.A. (GGAL) that are attracting significant buying interest.
Before delving into the fundamentals of the highlighted stocks, let’s first examine the current state of the U.S. banking space.
Following Silicon Valley Bank and Signature Bank, First Republic Bank’s collapse at the beginning of May marked the third major bank failure of the year. These three institutions collectively held approximately $559 billion in total assets, surpassing the inflation-adjusted value of $523 billion held by the 25 failed banks in 2008.
According to data released by the Federal Reserve, deposits held by small U.S. banks witnessed a historic loss of $119 billion to $5.46 trillion after the downfall of Silicon Valley Bank. This beckoned a shift in the banking industry’s focus from an immediate crisis to a medium-term concern centered around economic growth.
Goldman Sachs (GS) analysts, led by chief economist Jan Hatzius, anticipate that hindered credit growth brought on by the banking stress could dampen real GDP growth. Meanwhile, Minneapolis Fed President Neel Kashkari has warned that it could bring the United States closer to recession.
Given the gloomy outlook for the U.S. banking sector, it could be wise to venture beyond national borders. So, quality foreign bank stocks BCS, EBKDY, and GGAL, which are attracting substantial interest, could be ideal additions to your portfolio.
Let’s explore in detail what makes these stocks worthwhile investments.
Barclays PLC (BCS)
Headquartered in London, the United Kingdom, BCS provides financial services such as retail banking, credit cards, wholesale banking, investment banking, wealth management, and investment management. The company also engages in securities dealing activities. It operates through Barclays UK and Barclays International divisions.
On May 25, BCS announced its plans to enhance its working capital offering by investing in and adopting Trade Ledger’s cutting-edge working capital orchestration platform. Implementing this advanced platform would enable BCS to expedite lending decisions with enhanced efficiency.
Consequently, it would facilitate quicker access to funds, lower supply chain funding costs, and deliver significant advantages to the company’s corporate banking clients.
Also, on May 5, BCS and TransferMate, a leading B2B global payments infrastructure-as-a-service, teamed up to introduce an international receivables solution. The alliance would enable BCS to decrease transaction costs, save time, offer clients a new payment method, and provide reconciliation benefits and reduced banking fees.
In terms of forward non-GAAP P/E, BCS is trading at 5.30x, 40.5% lower than the industry average of 8.90x. Additionally, its forward Price/Sales multiple of 0.90 is 59.8% lower than the industry average of 2.24x.
For the first that ended March 31, 2023, BCS’ total income increased 11.4% year-over-year to £7.24 billion ($9.23 billion). Its profit after tax rose 25.7% from the year-ago value to £2.04 billion ($2.60 billion), and its EPS grew 34.5% year-over-year to £0.113.
Also, as of March 31, 2023, the company’s total assets stood at £1.54 trillion ($1.96 trillion), compared to £1.51 trillion ($1.93 billion) as of December 31, 2022.
The consensus revenue estimate of $34.83 billion for the fiscal year (ending December 2024) reflects a 2.4% year-over-year improvement. Likewise, the consensus EPS estimate of $1.75 for the same period indicates a 16.7% year-over-year improvement. Moreover, the company surpassed its consensus revenue estimates in three of four trailing quarters.
The stock has gained 11.4% over the past three months to close the last trading session at $7.72.
BCS’ solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
BCS has a B grade for Value, Momentum, and Sentiment. It has ranked #6 in the 89-stock Foreign Banks industry.
In addition to the POWR Ratings I’ve just highlighted, you can see BCS’ ratings for Growth, Stability, and Quality here.
Erste Group Bank AG (EBKDY)
Based in Vienna, Austria, EBKDY provides several banking and financial services, including loans, investment products, current and savings accounts, credit cards, and cross-selling products such as insurance and leasing. Additionally, it offers corporate finance, portfolio management, trading, and asset/liability management services.
On June 5, EBKDY and Yokoy, a fintech firm, partnered to enhance the capabilities of George Business, which is EBKDY and Sparkasse’s new business banking service. The alliance integrates Yokoy’s AI-driven spend management software on providing EBKDY’s corporate clients with a comprehensive and innovative financial management solution tailored to their complex needs.
Additionally, on May 26, EBKDY unveiled a guarantee agreement of €53 million ($57.99 million) with the European Investment Fund (EIF), unlocking over €66 million ($72.21 million) for social entrepreneurs in Austria, the Czech Republic, Hungary, Romania, and Slovakia.
The partnership would offer improved financing conditions, benefiting over 500 social enterprises. This could bolster EBKDY’s reputation and social impact.
In terms of forward P/E, EBKDY is trading at 5.26x, 43.8% lower than the industry average of 9.35x.Likewise, the stock’s forward Price/Sales of 1.29x is 42.4% lower than the industry average of 2.24x.
For the first quarter that ended March 31, 2023, EBKDY’s net interest income increased 27.1% year-over-year to €1.77 billion ($1.94 billion). Its operating income rose 22.7% from the year-ago value to €2.50 billion ($2.73 billion).
Also, the net result attributable to the owners of the parent increased 32.3% year-over-year to €593.60 million ($649.44 million), while EPS grew 32.4% from the prior year’s period to €1.39.
EBKDY’s revenue is expected to grow 19.8% year-over-year to $10.86 billion for the fiscal year ending December 2023. Likewise, its EPS for the ongoing year is expected to increase 24.1% year-over-year to $3.26. Moreover, the company topped its consensus EPS estimates in all four trailing quarters, which is impressive.
Over the past year, the stock has gained 19.6% to close the last trading session at $17.16.
EBKDY’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
EBKDY has a B grade for Value, Stability, Momentum, and Sentiment. It has ranked #12 out of 89 stocks within the Foreign Banks industry.
Click here to access additional EBKDY ratings (Growth and Quality).
Grupo Financiero Galicia S.A. (GGAL)
GGAL, with its headquarters in Buenos Aires, Argentina, is a financial service holding company that offers diverse financial products and services to individuals and companies in Argentina. It operates through Banks; NaranjaX; Insurance; and Other Businesses segments.
In terms of forward non-GAAP P/E, GGAL is trading at 5.48x, 38.5% lower than the industry average of 8.90x. Moreover, the stock’s forward Price/Sales multiple of 1.33 is 40.6% lower than the industry average of 2.24.
For the first quarter that ended March 31, 2023, GGAL’s net interest income increased 89.1% year-over-year to ARS 113.57 billion ($453.41 million). Its operating income rose 43.1% from the year-ago value to ARS 134.51 billion ($537.02 million). Also, the company’s total comprehensive income grew 68.3% year-over-year to ARS 18.16 billion ($72.48 million).
In addition, as of March 31, 2023, the company’s total assets stood at ARS 3.80 trillion ($15.17 billion), compared to ARS 3.73 trillion ($14.90 billion) as of March 31, 2022.
Analysts expect GGAL’s revenue to increase 231.4% year-over-year to $4.46 billion for the fiscal year ending December 2023. Similarly, the company’s revenue for the fiscal year 2024 is expected to grow 35.7% from the prior year to $6.06 billion.
Shares of GGAL have gained 52.2% over the past month and 141.2% over the past year to close the last trading session at $17.80.
GGAL’s robust outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
GGAL has a B grade for Growth, Value, and Momentum. It has ranked #15 out of 89 stocks within the same industry.
Click here to access additional GGAL ratings for Quality, Sentiment, and Stability.
What To Do Next?
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BCS shares were trading at $7.52 per share on Thursday afternoon, down $0.20 (-2.59%). Year-to-date, BCS has declined -0.78%, versus a 14.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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