The banking industry has showcased resilience and stability in the aftermath of the crisis-induced bank failures earlier this year. However, investors remain apprehensive due to pessimistic projections by top rating agencies.
Given this backdrop, let us discuss why it could be worth watching Citigroup Inc. (C) and M&T Bank Corporation (MTB), while Comerica Incorporated (CMA) could be best avoided now.
Before scrutinizing the fundamentals of these stocks, let’s discuss what’s shaping the banking industry’s prospects.
Following the tumult incited by the collapse of regional banks, the banking sector had begun to display some signs of stabilization.
This recovery also coincides with the Fed raising the benchmark interest rate to its highest point in over two decades, a trend speculated to reverse next year through planned rate cuts. Higher interest rates could potentially benefit banks, typically resulting in higher net interest income.
However, recent rating actions and cautions relayed by esteemed rating agencies like Moody's and Fitch have precipitated a decline in banking stocks, emphasizing investors' concerns about the industry's stability and prospects. Similarly, ratings agency S&P Global recently downgraded its credit ratings and outlook on several U.S. regional banks known for their significant commercial real estate (CRE) exposure.
S&P Global’s decision could render borrowing more expensive for the banking sector, particularly as it strives to rebound from earlier tumultuous times. Also, with the Fed's interest rate hikes that raised the borrowing costs, banks are compelled to offer higher interest on deposits to retain customers exploring higher-yielding alternatives.
Bankrate’s chief financial analyst Greg McBride said, “The top-yielding savings accounts and certificates of deposit remain the place to be as those are the banks that have raised their payouts to remain competitive for savers’ money.”
Amid such uncertainty, C and MTB could be added to one’s watchlist now, given their fundamental strength, while CMA could be best avoided.
Stocks to Watch:
Citigroup Inc. (C)
C provides financial products and services to consumers, corporations, governments, and institutions in North America, Latin America, Asia, Europe, the Middle East, and Africa. It operates through three segments: Institutional Clients Group (ICG), Personal Banking and Wealth Management (PBWM), and Legacy Franchises.
On July 20, C’s Board of Directors declared a quarterly dividend on C’s common stock of $0.53 per share, payable to the shareholders on August 25. It pays a $2.12 per share dividend annually, translating to a 5.04% yield on the current share price.
Its four-year average dividend yield is 3.65%. The company’s dividend payouts have grown at a CAGR of 0.33% over the past three years and 7.9% over the past five years.
C’s trailing-12-month net income margin of 19.09% is 26% lower than the industry average of 25.77%. Its trailing-12-month CAPEX/Sales of 8.89% is 341.6% higher than the industry average of 2.01%.
C’s total revenues for the fiscal second quarter that ended June 30, 2023, decreased 1% year-over-year to $19.44 billion. Its net income declined 35.9% year-over-year to $2.92 billion, while its EPS stood at $1.33, representing a decline of 39.3% year-over-year. On the other hand, its net interest income rose 16.2% year-over-year to $13.90 billion.
Analysts expect C’s revenue for the fiscal third quarter ending September 2023 to increase 4.2% year-over-year to $19.29 billion. Its EPS for the same quarter is expected to decline 21.7% year-over-year to $1.28.
The stock declined 2.5% intraday to close the last trading session at $41.02.
C’s mixed prospects are reflected in its POWR Ratings. It has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a C grade for Stability and Quality. It is ranked #3 out of 10 stocks in the Money Center Banks industry.
For additional ratings of C for Growth, Sentiment, Value, and Momentum, click here.
M&T Bank Corporation (MTB)
MTB operates as a bank holding company for Manufacturers and Traders Trust Company and Wilmington Trust, National Association, offering retail and commercial banking products and services in the United States. Its segments include Business Banking; Commercial Banking; Commercial Real Estate; Discretionary Portfolio; Residential Mortgage Banking; and Retail Banking.
On August 15, MTB declared a quarterly dividend of $1.30 per share on its common stock, payable to shareholders in September 2023. It pays a $5.20 per share dividend annually, translating to a 4.05% yield on the current share price.
Its four-year average dividend yield is 3.21%. The company’s dividend payouts have grown at a CAGR of 5.2% over the past three years and 10.4% over the past five years.
MTB’s trailing-12-month net income margin of 32.11% is 8.9% higher than the five-year average of 29.48%. Its trailing-12-month CAPEX/Sales of 2.46% is 6.8% lower than the five-year average of 2.63%.
For the fiscal second quarter that ended June 30, 2023, MTB’s net interest income increased 27.4% year-over-year to $1.80 billion. Its net income and net income per common share rose 298.6% and 367.6% year-over-year to $867.03 million and $5.05, respectively.
However, for the six months that ended June 30, 2023, its net cash provided by operating activities decreased 32.1% year-over-year to $1.69 billion. As of June 30, 2023, MTB’s long-term borrowings stood at $7.42 billion, compared to $3.96 billion as of December 31, 2022.
Analysts expect MTB’s revenue and EPS for the quarter ending September 2023 to increase 2.6% and 2.3% year-over-year to $2.30 billion and $3.85, respectively. However, its revenue and EPS for the quarter ending December 2023 are expected to decline 10.4% and 18.6% year-over-year to $2.25 billion and $3.67, respectively.
Over the past three months, the stock has gained 2% to close the last trading session at $125.70. However, the stock declined 8.8% over the past month.
MTB’s POWR Ratings reflect an uncertain outlook. It has an overall rating of C, equating to a Neutral in our proprietary rating system.
It has a C grade for Growth, Value, Momentum, Stability, and Sentiment. It is ranked #5 within the same industry.
Click here to see the other ratings of MTB (Quality).
Stock to Sell:
Comerica Incorporated (CMA)
CMA provides various financial products and services. The company operates through Commercial Bank, Retail Bank, Wealth Management, and Finance segments.
CMA’s trailing-12-month CAPEX/Sales of 2.50% is 5.3% lower than the five-year average of 2.64%.
CMA’s tangible book value has decreased at CAGRs of 12.4% and 9.3% over the past three and five years, respectively, while its common equity declined at CAGRs of 11.1% and 8.4% over the same periods.
For the fiscal second quarter that ended June 30, 2023, CMA’s net interest income declined 10.7% year-over-year to $621 million. Its comprehensive loss stood at $312 million.
The company’s average deposits for the quarter stood at $64.33 billion, down 17.1% year-over-year. As of June 30, 2023, CMA’s medium- and long-term debt stood at $6.96 billion, compared to $3.02 billion as of December 31, 2022.
Analysts expect CMA’s revenue and EPS for the fiscal third quarter ending September 2023 to decrease 10.4% and 33.9% year-over-year to $882.86 million and $1.72, respectively.
Over the past year, the stock has lost 44.9% to close the last trading session at $45.38. The stock declined 10.6% over the past month.
CMA’s POWR Ratings reflect its poor prospects. The stock has an overall rating of D, which translates to Sell in our proprietary rating system.
It has a D grade for Growth, Stability, Sentiment, and Quality. It is ranked #9 within the Money Center Banks industry.
To see the additional ratings of CMA (Value and Momentum), 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 >
C shares fell $41.02 (-100.00%) in premarket trading Wednesday. Year-to-date, C has declined -6.27%, versus a 15.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
Which of These Bank Stocks Should You Keep an Eye On? StockNews.com
