The Federal Reserve’s recent rate cut to stimulate the economy could be a boon for the financial sector. By lowering interest rates, borrowing becomes more affordable, which can lead to a surge in loan demand. For banks, this means an opportunity to boost earnings, especially those heavily reliant on lending.
Given this backdrop, investors could watch under-the-radar financial stocks, Wells Fargo & Company (WFC), Citigroup Inc. (C), and Banco Santander, S.A. (SAN), which are poised for a strong comeback in this low-rate environment.
As per the Cognitive Market research, the global Banking and Financial Services market is anticipated to grow at a CAGR of 7.9% by 2030, further making the outlook for undervalued financial stocks appear more promising. Market analyst Dan Irvine believes the rate cut has the potential to “stimulate investment, spur consumer spending, and reinvigorate economic activity.” If the Fed continues to lower rates, banks could see more loan activity, which means more economic spending and investment.
Additionally, the financial industry is reshaping its landscape with digital transformation by incorporating advanced technologies like artificial intelligence (AI), blockchain, and the Internet of Things (IoT). These innovations are helping banks deliver more seamless and personalized experiences, making them more adaptive and efficient in meeting the needs of modern consumers.
With that in mind, let’s take a closer look at the fundamentals of these stocks:
Wells Fargo & Company (WFC)
WFC provides international diversified banking, investment, mortgage, and consumer and commercial finance products and services. The company operates through four segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management.
On September 18, WFC announced a 50-basis points reduction in its prime rate, lowering it to 8% from 8.50%. This rate cut makes borrowing more affordable, potentially boosting loan demand and expanding WFC’s lending business.
In the same month, WFC launched specialized Application Programming Interfaces (APIs), tailored for its Commercial Banking clients. This programming will help WFC provide faster and more adaptive inventory management, order processing, invoicing, accounts payable, and supply chain management.
On August 20, WFC entered into an agreement with Trimont, LLC, a specialized global commercial real estate loan servicer and advisor, to sell its non-agency third-party servicing segment of its Commercial Mortgage Servicing (CMS) business. This transaction aligns well with the company’s strategy of focusing business on core consumers and corporates.
In terms of forward non-GAAP P/E, WFC is trading at 10.63x, 10.8% lower than the industry average of 11.92x. Likewise, the stock’s forward Price/Sales and Price/Book multiples of 2.24 and 1.11 are 22.2% and 6.9% lower than their respective industry averages of 2.88 and 1.19.
WFC’s total revenue for the second quarter (ended June 30, 2024) increased marginally year-over-year to $20.69 billion, while the Wealth and Investment Management segment reported a total revenue of $3.86 billion, indicating a 5.8% growth from the prior-year quarter. The company’s net income attributable amounted to $4.91 billion, and its EPS came in at $1.33 per share, up 10.8% year-over-year.
Analysts expect WFC’s revenue and EPS for the current year (ending December 2024) to be $82.24 billion and $5.10, respectively. For the fiscal year 2025, its revenue and EPS are expected to grow by 1.2% and 6.6% from the prior year to $83.26 billion and $5.43, respectively.
Over the past year, the stock has surged 30.2%, closing the last trading session at $54.16.
WFC’s stance is apparent in its POWR Ratings. The stock has a B grade for Value and Momentum. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Among the nine stocks in the Money Center Banks industry, it is ranked first. Click here to see the additional WFC ratings (Growth, Stability, Sentiment, and Quality).
Citigroup Inc. (C)
C is a global diversified financial service holding company offering several financial products and services to consumers, corporations, governments, and institutions. It operates through five segments: Services; Markets; Banking; U.S. Personal Banking; and Wealth.
On September 18, C lowered its base lending rate by 50 bps to 8% from 8.5%. This move could ease borrowing costs for consumers, potentially driving loan growth and boosting the bank’s interest income.
On August 8, the company announced that it had been selected by the Taiwan Depository & Clearing Corporation to provide global custody services as TDCC implements a new centralized custody platform. The support will allow C to leverage its experience in supporting financial market infrastructure and enhance the securities services ecosystem for investors.
In the same month, C was appointed as a depositary bank by NIP Group Inc. (NIP) for its American Depositary Receipt (ADR) program, enabling it to expand its role in international markets, supporting cross-border capital flows and boosting its revenue from depositary services.
In terms of forward GAAP P/E, C is trading at 10.53x, which is 11.7% lower than the industry average of 11.92x. The stock’s forward Price/Sales ratio of 1.45x is 49.5% below the industry average of 2.88x. Also, its forward non-GAAP PEG multiple of 0.40 compares to the industry average of 1.28x.
For the second quarter of 2024, which ended on June 30, C’s total revenues, net of interest expense increased 3.6% year-over-year to $20.14 billion. Its income from continuing operations came in at $3.26 billion, up 10.5% year-over-year. The company’s net income stood at $3.26 billion, or $1.52 per diluted share, indicating an increase of 10.4% and 14.3% year-over-year, respectively.
Street expects C’s revenue for the fiscal fourth quarter (ending December 2024) to increase 11.7% year-over-year to $19.48 billion, while its EPS estimate of $1.26 for the same period indicates a 49.6% year-over-year growth. Moreover, it topped the street EPS estimates in each of the trailing four quarters, which is excellent.
C shares have surged 47.8% over the past year and 17.6% year-to-date to close the last trading session at $61.37.
C’s mixed fundamentals are reflected in its POWR Ratings. The stock has a B grade for Value and is ranked #5 out of 9 stocks in the Money Center Banks industry.
Beyond what is stated above, we’ve also rated C for Growth, Momentum, Stability, Sentiment, and Quality. Get all C’s ratings here.
Banco Santander, S.A. (SAN)
Headquartered in Madrid, Spain, SAN is a retail and commercial bank that provides financial services worldwide. The company operates through four segments: Retail Banking; Santander Corporate & Investment Banking; Wealth Management & Insurance; and PagoNxt.
On September 9, SAN and Atitlan announced the launch of Atgro, a global investment platform dedicated to agricultural projects, focusing on ‘superfoods’ and sustainable production. The company’s involvement in Atgro strengthens its commitment to sustainability and diversifies its investment portfolio, potentially driving long-term growth in the agricultural sector.
In the same month, SAN agreed to become the official retail banking partner of Formula 1® for a multi-year deal starting in 2025. This partnership is expected to deepen the company’s customer engagement and create value across the market.
In terms of forward non-GAAP P/E, SAN is trading at 6.27x, 47.4% lower than the industry average of 11.92x. Likewise, the stock’s forward non-GAAP PEG and Price/Sales multiples of 0.42 and 1.12 are 67.6% and 61% lower than the industry averages of 1.28x and 2.88x, respectively.
In the second quarter that ended on June 30, 2024, SAN reported a total income of €15.67 billion ($17.44 billion), representing an increase of 4.2% year-over-year. The company’s profit from continuing operations came in at €3.45 billion ($3.87 billion), up 11.6% from the prior year. In addition, its profit attributable to the parent amounted to €3.21 billion ($3.57 billion) and €0.20 per share, reflecting increases of 12.4% and 17.6% year-over-year, respectively.
The consensus revenue estimate of $16.68 billion for the fiscal third quarter (ending September 2024) represents a 6.2% increase year-over-year. The consensus EPS estimate of $0.23 for the same quarter indicates a 26.9% improvement year-over-year. The company has an impressive surprise earnings history; it surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 37.2% over the past year to close the last trading session at $5.07.
SAN’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
SAN has an A grade for Momentum and a B for Value, Stability, and Sentiment. It is ranked first out of 90 stocks in the Foreign Banks industry. Click here to see the other ratings of SAN for Growth and Quality.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
WFC shares were trading at $53.57 per share on Wednesday afternoon, down $0.59 (-1.09%). Year-to-date, WFC has gained 11.07%, versus a 20.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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