Bank Earnings Continue To Outperform With Citi And Bank Of America Topping Estimates

Vendor Consolidation

The trends have continued over the past few days for US mega cap banks as results continue to outperform the street’s estimates. While each bank is reporting strengths and weaknesses, a common theme of outliar profits have come from better than expected trading revenues from heightened volatility in markets as a result of the Ukraine conflict.

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Bank of America on the other hand reported EPS of $0.80 vs the markets forecast of $0.75. Group sales came in at $23.3 billion, pretty much in-line with the $23.2 billion estimate. The BAC result topped estimates as its credit quality outperformed peers.

  • BAC shares have retreated 15.9% since the beginning of 2022 and are relatively flat over the year.
  • BAC currently pays a 2.16% dividend yield for those investors who continue to hold.
  • BAC has a consensus ‘overweight’ rating with an average target $49.6 implying ~28% upside to the current price.
  • BAC has jumped 15 ranks to 67th position on the most widely held leaderboard this week

Citigroup reported a significant EPS beat of $2.02 vs consensus estimates of $1.43. In addition, the market expected group sales of $18.2 billion which underestimated the actual figure by $1 billion, representing a 5.5% beat. CEO Jane Fraser noted that the firm made strong gains in foreign exchange and commodity markets which added to the significant non-interest income segment beat.

  • C shares have fallen -17.1% since the beginning of 2022 and have fallen -27.5% over the past year.
  • Jason Goldberg from Barclays believes a lower-than-expected loan loss provision and tax rates assisted trading results when driving the EPS beat.
  • The stock pays a healthy 3.9% dividend yield
  • C has a consensus ‘overweight’ rating with an average target of $66, implying +26.5% upside to the current stock price

We also note that other peer banks Morgan Stanley and Goldman Sachs both topped estimates on stronger revenue from trading segments while investment banking fees were lower year on year as M&A activity fell.

The bottom line is that the market has sold down the banking stocks that have shown to be more resilient than expected. The year ahead is likely to experience more volatility with many uncertain variables around Covid, inflation and the conflict. While investment banking revenues are likely to remain subdued, a rising interest rate environment will promote net interest margin expansion which is a primary revenue driver for these businesses.

Fintel Analysis:

These are some key metrics that we have highlighted from Fintel’s Quant analysis that interested us:

Bank of America Corp (NYSE: BAC)

  • BAC has a Put/Call Ratio of 0.90 indicating bullish sentiment in the stock and ranks the bank in the top 1.25% of 130,000 included companies
    • The Put/Call Ratio shows the total number of disclosed open put option positions divided by the number of open call option options. Since puts are generally a bearish bet and calls are a bullish bet, put/call ratios greater than 1 indicate a bearish sentiment, and ratios less than one indicate a bullish sentiment.
  • BAC has a value score of 73.88 that ranks companies based on relative valuation with 20,000 constituents
  • BAC has an Insider Accumulation score of 69.48 that ranks it in the top 95.4% of 15,000 companies
    • This a multifactor quant that ranks companies according to the level of insider buying

Citigroup Inc (NYSE:C)

  • C has a Put/Call ratio of 1.33 indicating bearish sentiment on the stock
  • C has a low Ownership Accumulation score of 28.44 ranking it in the lower quartile of peer companies. We have observed institutional ownership fall over the past year and have included the chart below to illustrate this.

Article by Ben Ward, Fintel

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