Last year's advantageous monetary policy tightening by the Federal Reserve, which had initially favored banks, is now impinging on their prospects. Elevated interest rates have led to a deceleration in loan growth, compelling banks to incur elevated deposit costs to prevent customer attrition to more lucrative alternatives.
The earnings season has brought varied outcomes for mid-sized lenders, with some experiencing notable profit declines. On January 19, Fifth Third Bancorp (FITB) disclosed its fiscal 2023 fourth-quarter earnings, revealing a 10.1% year-over-year decrease in net interest income to $1.42 billion, slightly below analysts' projections.
Moreover, the company witnessed a 28.5% decline in income before income taxes, amounting to $657 million, compared to the previous year. Additionally, net income and earnings per share experienced a 28.1% and 28.7% reduction from the prior year, settling at $530 million and $0.72, respectively.
With a 30% decline in quarterly profit, FITB has cautioned of reduced net interest income in 2024 due to sluggish loan growth and heightened deposit costs impacting the bank's margins. Anticipating a 2% to 4% decrease from the 2023 figure of $5.85 billion, FITB expects total revenue to dip between 1% and 2%.
Shares of FITB have marginally plunged over the past month, closing the last trading session at $34.56.
Here are the other financial aspects of FITB that could influence its performance in the near term:
Poor Historical Growth
Over the past three years, FITB’s tangible book value decreased at a CAGR of 10.2%. Additionally, during the course of the time, its common equity fell at a 6.7% CAGR. Furthermore, over the last five years, the company's tangible book value declined at a marginal CAGR.
Stretched Valuation
In terms of forward non-GAAP P/E, FITB is trading at 10.77x, 3.2% higher than the industry average of 10.44x. Its forward Price/Sales of 2.69x is 2.8% higher than the industry average of 2.62x. Additionally, the stock’s forward Price/Book of 1.29x is 14.1% higher than the 1.13x industry average.
Unoptimistic Analyst Estimates
The consensus revenue estimate of $2.09 billion for the fiscal 2024 first quarter ending March 2024 indicates a 5.8% year-over-year decrease. Likewise, the consensus EPS estimate of $0.68 for the ongoing quarter exhibits an 18% decline from the prior-year period.
In addition, the company’s revenue and EPS for the fiscal 2024 second quarter ending June 2024 are estimated to decrease 2.1% and 8.6% year-over-year to $2.14 billion and $0.80, respectively.
Lower-Than-Industry Profitability
The stock’s trailing-12-month Return On Total Assets (ROTA) of 1.09% is 3.4% lower than the 1.13% industry average. Additionally, its trailing-12-month cash per share of $4.61 is 30.9% lower than the $6.67 industry average.
POWR Ratings Exhibit Bleak Prospects
FITB’s bleak outlook is apparent in its POWR Ratings. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. FITB has a D grade for Sentiment, which is consistent with analysts' pessimistic projections. It also has a D grade for Growth, which corresponds with its dismal growth record.
FITB is ranked #39 out of 45 stocks in the Midwest Regional Banks industry. Click here to access FITB’s Value, Momentum, Stability, and Quality ratings.
Bottom Line
FITB is currently battling with a bleak 2024 prognosis, sharp declines in profit, and diminishing net interest income. In addition, considering its unfavorable analyst projections, low profitability, and poor track record of growth, it would be wise to steer clear of FITB for the time being.
How Does Fifth Third Bancorp (FITB) Stack Up Against Its Peers?
While FITB has an overall grade of D, equating to a Sell rating, you may check out these other B-rated (Buy) stocks within the Foreign Banks industry: Banco Santander, S.A. (SAN), Banco do Brasil S.A. (BDORY), and Erste Group Bank AG (EBKDY). To explore more Foreign Banks stocks, click here.
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FITB shares were trading at $34.19 per share on Tuesday morning, down $0.37 (-1.07%). Year-to-date, FITB has declined -0.87%, versus a 1.61% 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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