Prolonged high interest rates, higher deposit costs, a slowdown in loan growth, potential defaults on commercial real estate loans, stringent lending standards, and a possible uptick in delinquencies cloud the U.S. banking sector’s outlook this year.
Amid this backdrop, investors could wait for an opportune entry point in popular bank stocks JPMorgan Chase & Co. (JPM), Wells Fargo & Company (WFC), and Bank of America Corporation (BAC).
Big banks were among the biggest beneficiaries of the Federal Reserve’s interest rate hikes since March 2022, as they reported a surge in their net interest income and record profits in recent quarters. However, the outlook for big banks looks uncertain as inflation remains elevated and interest rates continue to remain high.
The Federal Reserve kept the benchmark lending rate unchanged between 5.25% and 5.50%, the highest in more than two decades, as the unemployment rate remained low and inflation remained high. Big banks' net interest income fell short of expectations during the first quarter as deposit costs rose due to elevated interest rates.
Investors have been concerned whether the Federal Reserve will cut interest rates this year. A lack of substantial progress toward its 2% inflation goal could force the central bank to delay rate cuts.
If interest rates remain elevated, big banks' deposit costs will rise. Moreover, keeping interest rates where they are could strain consumers' finances, thereby affecting their ability to make repayments on time. This could also prompt banks to make more provisions. Furthermore, higher interest rates could hamper loan growth.
Considering these factors, let’s examine the fundamentals of the Money Center Banks stock picks, starting with the one ranked lower in our proprietary rating system.
Stock #3: JPMorgan Chase & Co. (JPM)
JPM operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB), Corporate & Investment Bank (CIB), Commercial Banking (CB), and Asset & Wealth Management (AWM).
JPM’s trailing-12-month net income margin of 33.57% is 46.3% higher than the industry average of 22.94%. Likewise, its trailing-12-month Return on Common Equity and Return on Total Assets of 16.66% and 1.23% are 57.2% and 16.1% higher than the industry averages of 10.60% and 1.06%, respectively.
JPM’s net revenue for the fiscal first quarter that ended March 31, 2024, increased 9.3% year-over-year to $41.93 billion. Moreover, its net income stood at $13.42 billion, up 6.3% from the year-ago quarter.
Also, its earnings per share grew 8.3% over the prior-year quarter to $4.44. As of March 31, 2024, JPM’s cash and due from banks amounted to $22.75 billion, compared to $29.07 billion as of December 31, 2023.
Analysts expect JPM’s revenue for the quarter ending June 30, 2024, to increase marginally year-over-year to $41.39 billion. Its EPS for the same quarter is expected to decline 13.9% year-over-year to $4.09. The company surpassed the Street revenue and EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 47.9%, closing the last trading session at $204.79.
JPM’s POWR Ratings reflect its mixed prospects. It has an overall C rating, equating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
JPM has a C grade for Sentiment and Quality. Within the Money Center Banks industry, it is ranked #6 out of 9 stocks. Click here for the additional POWR Ratings of JPM (Growth, Value, Momentum, and Stability).
Stock #2: Wells Fargo & Company (WFC)
WFC provides diversified banking, investment, mortgage, and consumer and commercial finance products and services in the U.S. and internationally. The company operates through four segments: Consumer Banking and Lending, Commercial Banking, Corporate and Investment Banking, and Wealth and Investment Management.
On March 5, 2024, WFC announced its plans to launch new electronic Foreign Exchange (eFX) pricing capabilities in Singapore in the second half of 2024, which the Monetary Authority of Singapore will support.
It aims to deliver a lower latency trading environment to clients and promote greater efficiency for Singapore and wider APAC Foreign Exchange markets by connecting with more of its clients and pricing and executing eFX transactions faster and more efficiently.
WFC’s trailing-12-month net income margin of 24.19% is 5.4% higher than the industry average of 22.94%. Similarly, its trailing-12-month Return on Common Equity of 10.84% is 2.3% higher than the industry average of 10.60%. However, the stock’s trailing-12-month Return on Total Assets of 0.96% is 9.6% lower compared to the industry average of 1.06%.
For the fiscal first quarter that ended March 31, 2024, WFC’s total revenue increased marginally year-over-year to $20.86 billion. On the other hand, its net income and earnings per share stood at $4.62 billion and $1.20, down 7.5% and 2.4% from the year-ago quarter, respectively.
Street expects WFC’s EPS for the quarter ending June 30, 2024, to increase 1.6% year-over-year to $1.27. Its revenue for the same quarter is expected to decline 1.3% year-over-year to $20.26 billion. The company surpassed consensus EPS and revenue estimates in each of the trailing four quarters. WFC’s stock has gained 51% over the past year, closing the last trading session at $61.08.
WFC’s mixed fundamentals are reflected in its POWR Ratings. It has an overall rating of C, equating to Neutral in our proprietary rating system.
It has a C grade for Growth, Value, Stability, Sentiment, and Quality. It is ranked #3 in the same industry. Get WFC’s Momentum rating, here.
Stock #1: Bank of America Corporation (BAC)
BAC provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. It operates in four segments: Consumer Banking, Global Wealth & Investment Management (GWIM), Global Banking, and Global Markets.
BAC’s trailing-12-month net income margin of 26.81% is 16.9% higher than the industry average of 22.94%. On the other hand, BAC’s trailing-12-month Return on Total Assets of 0.76% is 27.9% lower compared to the industry average of 1.06%.
BAC’s total revenue for the fiscal first quarter that ended March 31, 2024, declined 1.7% year-over-year to $25.82 billion. The company’s total cash and cash equivalents, as of March 31, 2024, amounted to $370.65 billion, compared to $230.48 billion as of March 31, 2023.
On the other hand, its net income applicable to common shareholders stood at $6.14 billion or $0.76 per share, down 19.8% and 19.1% over the prior-year quarter, respectively.
For the quarter ending June 30, 2024, BAC’s revenue is expected to increase marginally year-over-year to $25.34 billion. Its EPS for the same quarter is expected to decline 7.2% year-over-year to $0.82. It surpassed consensus revenue estimates in three of the trailing four quarters. The stock has gained 37.5% over the past year to close the last trading session at $39.29.
BAC’s POWR Ratings reflect this uncertain outlook. It has an overall rating of C, equating to Neutral in our proprietary rating system.
BAC has a C grade for Value, Momentum, Stability, Sentiment, and Quality. It is ranked #2 in the Money Center Banks industry. Click here to see BAC’s rating for Growth.
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JPM shares were trading at $203.24 per share on Monday morning, down $1.55 (-0.76%). Year-to-date, JPM has gained 20.92%, versus a 12.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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