Bank Earnings Expected to Jump from Q2, but Down from Q3 2019
The four biggest banks in the United States are set to announce earnings next week and the expectations show estimates are up from the second quarter, but down from last year.
The banks I’m referring to are Bank of America (BAC), Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC). Rather than list each company and its EPS estimate one by one, I put together the table below on Tickeron’s Screener. It shows all four companies and the current EPS estimate for the third quarter. We see that all four banks are expected to show pretty solid growth in earnings compared to the EPS numbers reported in the abysmal second quarter.
I wanted to take things a step farther and wanted to include a comparison to the results from the third quarter of 2019. The table below shows each bank’s EPS figures from Q2 2020 as well as Q3 results from 2019. All four banks are expected to show pretty sharp declines in earnings when compared to the results from the same period one year ago.
These results reflect what has happened in the economy since the COVID-19 pandemic hit the global economy in a massive way. The sharp selloff in the overall market from mid-February through late March hit the banks even harder. All four of the companies listed in the tables fell over 40% with Citi taking a hit of over 54% at the lows. Like the overall market, the banks have rallied sharply since March 23, but unlike the S&P, the banks aren’t back up to their pre-selloff levels.
Banks have seen a slight boost in the last few weeks and have outperformed the overall market. Part of that is due to a widening spread between short-term interest rates and long-term rates. A wider spread tends to help banks because they borrow at the short-end of the credit cycle and they tend to lend at the long-end of the cycle. This can help boost the profitability.
Looking at the fundamental factors and technical indicators ahead of the earnings reports, the fundamentals show themes in a couple of areas. The Outlook Ratings are positive for three out of the four, but only a neutral rating for Wells Fargo. The biggest trouble spot seems to be the SMR Ratings as all four get poor ratings from this indicator that measures sales growth, profit margin, and return on equity.
The technical picture seems to be a little better than the fundamental picture. Three of the four stocks have bullish signals from the RSI, the MACD, and the Momentum Indicator. JPMorgan Chase has two bullish signals and four neutral signals. Bank of America has four bullish signals and two neutral signals. All four have more bullish signals than bearish signals.
As for the overall picture, all four stocks currently have “buy” ratings on them and those ratings are primarily based on the short-term technical indicators. Personally I would rank Bank of America a little higher than JPMorgan Chase. I would rank Citigroup third and Wells Fargo would be ranked fourth. The reason for these rankings boils down to several factors. The fact that Bank of America has four bullish signals from the technical indicators is a big plus, and the fundamental ratings are very similar for JPMorgan. The technical picture gives the edge to BAC.
Citi has more negative readings than positive readings on the fundamental side, but has four bullish signals on the technical side. Wells Fargo has had many issues in recent years and that seems to be reflected in the stock performance in the last few years. WFC is down 43% in the past year and that is by far the worst performance of the four. It also only has two bullish signals compared to one bearish signal on the technical side.
One last factor in why I give a slight edge to Bank of America is the sentiment toward the four stocks. BAC has the highest short interest ratio of the four stocks and only 57.7% of analysts have the stock rated as a “buy”. Citigroup’s buy percentage is 83.3% and JPMorgan’s is 65.4%. Wells Fargo’s is 25.9%, but it has had so many legal issues and such that the bearish sentiment appears to be warranted.
When it comes to sentiment analysis, you want to view things from a contrarian viewpoint. The idea is that the less enthusiasm there is toward a stock, the greater the chance that it can rally as the enthusiasm grows more bullish. If the sentiment is already extremely bullish, the chances of a letdown are much greater.
BAC in upward trend: price rose above 50-day moving average on April 18, 2024
BAC moved above its 50-day moving average on April 18, 2024 date and that indicates a change from a downward trend to an upward trend. In of 38 similar past instances, the stock price increased further within the following month. The odds of a continued upward trend are .
Technical Analysis (Indicators)
Bullish Trend Analysis
The RSI Indicator points to a transition from a downward trend to an upward trend -- in cases where BAC's RSI Oscillator exited the oversold zone, of 32 resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
The Stochastic Oscillator shows that the ticker has stayed in the oversold zone for 5 days. The price of this ticker is presumed to bounce back soon, since the longer the ticker stays in the oversold zone, the more promptly an upward trend is expected.
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where BAC advanced for three days, in of 324 cases, the price rose further within the following month. The odds of a continued upward trend are .
BAC may jump back above the lower band and head toward the middle band. Traders may consider buying the stock or exploring call options.
The Aroon Indicator entered an Uptrend today. In of 257 cases where BAC Aroon's Indicator entered an Uptrend, the price rose further within the following month. The odds of a continued Uptrend are .
Bearish Trend Analysis
The Momentum Indicator moved below the 0 level on April 10, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on BAC as a result. In of 83 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
The Moving Average Convergence Divergence Histogram (MACD) for BAC turned negative on April 04, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 43 similar instances when the indicator turned negative. In of the 43 cases the stock turned lower in the days that followed. This puts the odds of success at .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where BAC declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
Fundamental Analysis (Ratings)
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating very strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to outstanding earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating steady price growth. BAC’s price grows at a higher rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating well-balanced risk and returns. The average Profit vs. Risk Rating rating for the industry is 59, placing this stock slightly better than average.
The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is slightly overvalued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (1.125) is normal, around the industry mean (0.945). P/E Ratio (12.182) is within average values for comparable stocks, (8.857). Projected Growth (PEG Ratio) (3.860) is also within normal values, averaging (2.584). Dividend Yield (0.025) settles around the average of (0.100) among similar stocks. P/S Ratio (3.075) is also within normal values, averaging (2.430).
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