Despite recovering from last year’s challenges, the U.S. banking industry still faces the risks of a potential default on commercial real estate (CRE) loans, a delay in interest rate cuts, higher borrowing costs, slowing loan growth, higher deposit costs, etc.
Amid this backdrop, it could be prudent to look beyond borders and invest in fundamentally strong financial stocks, such as Woori Financial Group Inc. (WF), Erste Group Bank AG (EBKDY), and Banco Santander, S.A. (SAN). These stocks are B (Buy-rated) in our proprietary POWR Ratings system.
Despite a jump in U.S. banks' net interest incomes during the first quarter, they continue to face challenges such as rising credit card debt, delinquencies in CRE loans, higher deposit costs, slowing loan growth, declining asset quality, funding cost pressures, slowing economic growth, stringent lending standards, and higher net interest expenses.
Furthermore, there are signs of stagflation, as inflation remains stubbornly high, along with slowing economic growth. This has also raised concerns that the Federal Reserve may not cut interest rates this year.
If interest rates persist at elevated levels for an extended period, it could pose challenges for U.S. banks. Thus, considering the positive industry trends abroad, exploring investment opportunities in quality foreign financial stocks might be prudent.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Foreign Banks stocks, starting with the third choice.
Stock #3: Woori Financial Group Inc. (WF)
Headquartered in Seoul, South Korea, WF is a financial holding company that operates as a commercial bank providing financial products and services to individuals, corporations, and small- and medium-sized enterprises in Korea. It operates through Banking, Credit Card, Capital, Investment Banking, and Other segments.
In terms of forward non-GAAP P/E, WF’s 3.87x is 63.6% lower than the 10.61x industry average. Likewise, its 1.01x forward Price/Sales is 59.7% lower than the 2.52x industry average.
WF’s net operating revenue for the first quarter that ended March 31, 2024, increased 10.6% year-over-year to KRW2.14 trillion ($1.56 billion). The company’s operating income stood at KRW1.08 trillion ($783.87 million), up 293.8% over the prior-year quarter. Moreover, WF’s net income grew 265% year-over-year to KRW792 billion ($576.44 million).
For the quarter ending June 30, 2024, WF’s EPS is expected to increase 17.5% year-over-year to $2.15. Its revenue for the quarter ending September 30, 2024, is expected to increase 3.3% year-over-year to $1.88 billion. Over the past year, WF’s stock has gained 19.2% to close the last trading session at $31.03.
WF’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Momentum, and Sentiment. It is ranked #15 out of 90 stocks in the Foreign Banks industry. To see WF’s Growth, Stability, and Quality ratings, click here.
Stock #2: Erste Group Bank AG (EBKDY)
Headquartered in Vienna, Austria, EBKDY provides a range of banking and other financial services to retail, corporate, and public sector customers. The company operates through Retail, Corporates, Group Markets, Asset/Liability Management & Local Corporate Center, Savings Banks, and Group Corporate Center segments.
In terms of forward Price/Sales, EBKDY’s 1.71x is 31.9% lower than the 2.52x industry average.
EBKDY’s net interest income for the fiscal first quarter (ended March 31, 2024) increased 4.7% year-over-year to €1.85 billion ($1.98 billion). Its net result attributable to owners of the parent improved 31.8% from the year-ago value to €783 million ($838.77 million). In addition, the company’s operating result rose 19.7% over the prior-year quarter to €1.51 billion ($1.62 billion).
Analysts expect EBKDY’s EPS and revenue for fiscal 2025 to increase 8.4% and 0.3% year-over-year to $4.14 and $11.27 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 32.7% to close the last trading session at $23.73.
It’s no surprise that EBKDY has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Stability and a B for Momentum and Sentiment. Within the same industry, it is ranked #11. In total, we rate EBKDY on eight different levels. Beyond what we have stated above, we also have given EBKDY grades for Growth, Value, and Quality. Get all the EBKDY ratings here.
Stock #1: Banco Santander, S.A. (SAN)
Headquartered in Madrid, Spain, SAN provides various financial services worldwide. The company operates through Retail Banking, Santander Corporate & Investment Banking, Wealth Management & Insurance, and PagoNxt segments.
On April 9, 2024, SAN announced the launch of Openbank in the U.S. and Mexico by the second half of 2024, following its success as Europe's largest 100% digital bank.
In terms of forward non-GAAP PEG, SAN’s 0.50x is 60.2% lower than the 1.25x industry average. Likewise, its 1.18x forward Price/Sales is 53.2% lower than the 2.52x industry average. Also, its 0.69x forward Price/Book is 33.6% lower than the 1.04x industry average.
For the fiscal first quarter that ended December 31, 2023, SAN’s net interest income increased 15.3% year-over-year to €11.98 billion ($12.83 billion), and its total income grew 8.1% over the prior-year quarter to €15.05 billion ($16.12 billion).
The company’s net operating income came in at €8.50 billion ($9.11 billion), up 9.3% from the previous year’s period. Also, SAN’s profit attributable to the parent increased 10.9% year-over-year to €2.85 billion ($3.05 billion).
Street expects SAN’s EPS for the quarter ending June 30, 2024, to increase 27.9% year-over-year to $0.23. Its revenue for the same quarter is expected to increase 6.6% year-over-year to $16.67 billion. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 44.1% to close the last trading session at $4.87.
SAN’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It is ranked #2 in the Foreign Banks industry. It has a B grade for Value, Momentum, Stability, and Sentiment. To access SAN’s grades for Growth and Quality, click here.
What To Do Next?
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SAN shares were trading at $4.84 per share on Friday afternoon, down $0.03 (-0.62%). Year-to-date, SAN has gained 18.60%, versus a 7.78% 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.
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