Citigroup, Wells Fargo and JPMorgan Climb. Is It Time To Buy Bank Stocks Now?
Bank stocks C, WFC and JPM are all up after earnings, pointing to strength in the beaten-down sector.
If better-than-expected quarterly results from three of the nation's biggest financial firms are any indication, there might be bargains lurking among bank stocks.
JPMorgan Chase (JPM, $112.92), Wells Fargo (WFC, $43.89) and Citigroup (C, $43.55) marked the unofficial opening of the third-quarter earnings season on Friday, and they did so on an upbeat note.
Indeed, all three big banks exceeded Wall Street's earnings per share estimates, and by wide margins at that.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Shares in the three lenders rose sharply on the news, even as the broader market sold off. True, the market pretty much always overreacts – both to the upside and downside – in the immediate aftermath of a news event such as earnings.
But the buoyancy exhibited by JPM, WFC and C after their respective earnings reports might just mean that bank stocks have been beaten down beyond reason heading into what is widely expected to be a brutal third-quarter earnings season.
JPM's Bottom Line Beats the Street
JPM, a component of the Dow Jones Industrial Average and nation's biggest bank by assets, reported a less-than-feared 17% drop in third-quarter profit on Friday, as a jump in interest income cushioned a blow from higher loan loss provisions and a slump in dealmaking due to a worsening economic outlook.
Typically, rising interest rates are good for banks because they can charge consumers more, but the broader risk of an economic slowdown and higher cost of borrowing could cloud the economic outlook and hurt future earnings.
Chief Executive Jamie Dimon said in a statement that American consumers continue to spend and businesses remain healthy.
However, he added there were "significant headwinds immediately in front of us," noting stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine and the fragile state of oil supply and prices.
"While we are hoping for the best, we always remain vigilant and are prepared for bad outcomes."
For the quarter, JPMorgan's profit fell to $9.74 billion, or $3.12 per share. Revenue rose 10% to $32.72 billion, helped by a 22% increase in revenue from fixed income trading.
The bank's adjusted profit was $3.36 per share, well above analysts' average estimate of $2.88, according to Refinitiv data.
Credit Suisse analyst Susan Roth Katzke said "simply put, JPMorgan delivered a solid set of results, from top to bottom."
Citigroup and Wells Fargo Also Join the Beat Parade
Citigroup, the nation's third-largest lender by assets, reported net profit of $3.5 billion, or $1.63 per share, in the three months ended Sept. 30. Analysts on average had expected a profit of $1.42 per share.
True, the bank reported a 25% year-over-year drop in third-quarter profit, hurt by having to set aside more funds to cover soured loans from a potential economic downturn and a slump in investment banking business. However, signs abound that Citigroup's turnaround efforts are beginning to bear fruit.
Meanwhile, analysts were also too pessimistic about Wells Fargo. The nation's fourth-largest bank reported a 31% decline in third-quarter profit, hurt by costs related to a fake accounts scandal and higher loan-loss reserves.
Yet, like its fellow bank stocks, WFC beat estimates. On an adjusted basis, the lender earned $1.30 per share, or far more than the Street's forecast for $1.09 per share.
Of these three bank stocks, only WFC is beating the broader market so far this year. Shares in Wells Fargo were off almost 12% for the year-to-date through Oct. 13. JPM and C were down 31% and 29%, respectively, over that span, while the S&P 500 was off 23%.
Meanwhile, Buy Calls Abound on the Street
Anytime a stock sells off that hard, bulls can usually point to valuation as a reason to be constructive on a name. Happily for bulls, these banks' quarterly reports make such arguments even more convincing.
And not for nothing, but industry analysts were already collectively optimistic about these three bank stocks at their current levels.
JPM carried a consensus recommendation of Buy heading into its third-quarter earnings report, albeit with somewhat mixed conviction. Of the 26 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 10 rated it at Strong Buy, six said Buy, nine had it at Hold and one called it a Strong Sell.
Citigroup also scored a consensus Buy recommendation, with seven Strong Buy calls, two Buys, 14 Holds and one Strong Sell.
WFC, meanwhile, sported a consensus recommendation of Buy with high conviction. Of the 26 analysts issuing opinions on the stock tracked by S&P Global Market Intelligence, 12 called it a Strong Buy, nine said Buy and five called it a Hold.
And make no mistake, we're already seeing some analyst upgrades on these bank stocks roll in. CFRA Research upgraded WFC to Hold from Sell on Friday thanks to the bank's third-quarter results.
The Bottom Line
If there was a sliver of a silver lining to be found heading into what is forecast to be the worst earnings season since the height of the COVID-19 pandemic, it was this: Analysts' estimates were so low that companies should be able to trip over them.
If nothing else, results from JPM, C and WFC accomplished exactly that – at least as far as bank stocks are concerned.
Reuters reporters Mehnaz Yasmin, Lananh Nguyen, Niket Nishant and Noor Zainab Hussain contributed to this article.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
Dan Burrows is Kiplinger's senior investing writer, having joined the august publication full time in 2016.
A long-time financial journalist, Dan is a veteran of SmartMoney, MarketWatch, CBS MoneyWatch, InvestorPlace and DailyFinance. He has written for The Wall Street Journal, Bloomberg, Consumer Reports, Senior Executive and Boston magazine, and his stories have appeared in the New York Daily News, the San Jose Mercury News and Investor's Business Daily, among other publications. As a senior writer at AOL's DailyFinance, Dan reported market news from the floor of the New York Stock Exchange and hosted a weekly video segment on equities.
Once upon a time – before his days as a financial reporter and assistant financial editor at legendary fashion trade paper Women's Wear Daily – Dan worked for Spy magazine, scribbled away at Time Inc. and contributed to Maxim magazine back when lad mags were a thing. He's also written for Esquire magazine's Dubious Achievements Awards.
In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
Dan holds a bachelor's degree from Oberlin College and a master's degree from Columbia University.
Disclosure: Dan does not trade stocks or other securities. Rather, he dollar-cost averages into cheap funds and index funds and holds them forever in tax-advantaged accounts.
-
Is a Phased Retirement Right for You?
Want to keep working, just not as hard? A phased retirement may just be the answer.
By Kimberly Lankford Published
-
Four Tips to Make Your Sales Presentation a Winner
Being prepared and not being boring can go a long way toward persuading a potential customer to buy into what you’re offering.
By H. Dennis Beaver, Esq. Published
-
Stock Market Today: Stocks Tumble After a Hot Inflation Print
Equities retreated after inflation data called the Fed's rate-cut plans into question.
By Dan Burrows Published
-
Stock Market Today: Stocks End Mixed Ahead of Key Inflation Reading
Equities struggled before tomorrow's big Consumer Price Index report.
By Dan Burrows Published
-
Stock Market Today: Stocks Closed Mixed in Choppy Trading
Volatility returned as market participants adjusted their expectations for rate cuts.
By Dan Burrows Published
-
Fiscal Year Definition: What Every Investor Should Know
A fiscal year has uses for financial reporting. Here's why it's an important concept for investors to be aware of.
By Will Ashworth Published
-
Warren Buffett Stocks: Analyzing The Berkshire Hathaway Portfolio
The Berkshire Hathaway portfolio is a diverse set of blue chips and some lesser-known growth bets. Here, we look at all stocks picked by Buffett and his lieutenants.
By Dan Burrows Published
-
Stock Market Today: Dow Drops After Mixed Blue Chip Earnings
While the S&P 500 notched another record close Tuesday, the blue-chip average was pressured by 3M's disappointing outlook.
By Karee Venema Published
-
Stock Market Today: S&P 500, Dow Hit Record Highs
Strong gains for blue chips such as JPMorgan Chase and Travelers pushed the S&P 500 and Dow to new heights.
By Karee Venema Published
-
What Is a Reverse Stock Split?
Reverse stock splits allow a company to immediately raise its share price, but there's a catch.
By Mark R. Hake, CFA Published