Earnings

Citigroup, Goldman Sachs, JP Morgan: which share price is the best bet in banking?

Several of America’s largest banks released their second quarter earnings last week, and the mixed results have caused share prices to move in all directions.

First up was Citigroup’s [C] 15 June report, which sported a positive headline figure: net income was up 7% year-on-year. But, despite the news, the stock dipped to an intraday low of $70.08, down 2.3% from market open.

Goldman Sachs [GS], too, dipped 0.78% overnight to open at $213.83 after announcing its estimates-beating results the following day. JP Morgan [JPM], meanwhile, after posting a record second-quarter profit of $9.65bn, opened up 0.84% at $114.43 on Wednesday morning.

 

 CitigroupGoldman SachsJP Morgan
Market cap$162.63bn$80.27bn$372.06bn
PE ratio (TTM)10.029.2011.90
EPS (TTM)7.1923.869.78
Quarterly Revenue Growth (YoY)-0.00%-1.60%4.30%

Citigroup, Goldman Sachs, JP Morgan share price vitals, Yahoo Finance, 24 July 2019

 

Citigroup’s share price: caution prevails

Citigroup’s profit rose to $4.8bn from $4.5bn a year ago, while EPS came in at $1.95, beating analyst expectations of $1.80. Revenue at the bank also beat expectations, coming in at $18.76bn, up 2% from a year ago. Consumer banking revenues, too, were up 3% to $8.5bn.

But behind these headline figures were plenty of reasons for investors to exercise caution. Trading revenues, while up 4% year-on-year at $4.1bn, had been boosted massively by a one-time sell-off. If it weren’t for this event, revenues in this division would have recorded its third quarterly loss in a row.

 

 

Large multinational companies, which make up the core of Citigroup’s business, remain sensitive to ongoing trade tensions, according to Chief Financial Officer Mark Mason, who told reporters: “There’s a bit of caution that corporate clients are exercising, and in particular in Asia. It’s a byproduct of the trade tensions impacting demand for corporate lending there.”

“There’s a bit of caution that corporate clients are exercising, and in particular in Asia. It’s a byproduct of the trade tensions impacting demand for corporate lending there” - Citigroup CFO Mark Mason

 

Citigroup’s share price has been historically volatile and overall for the year-to-date, as of Monday’s close, the share price has gained 40.3%. Analysts expect the bank to make further gains after its post-earnings dip, with an average price target of $82.24 representing a 15.7% upside on Monday's price of $71.11. Overall, the consensus recommendation for the stock sits at “buy”.

 

Goldman Sachs’ share price: one to hold?

Goldman Sachs reported an out-of-the-ballpark EPS of $5.81, almost 20% higher than analysts’ mooted $4.89, while its $9.46bn revenue also beat the $8.83bn estimates. It posted better-than-expected total investment banking revenue – $1.86bn for the quarter – as well as equities revenue, coming in at $2.01bn in the second quarter. Revenues for fixed income, currency and commodities were slightly down on projections, however.

 

 

But while the bank certainly exceeded expectations, its total revenue was still down 2% from Q2 2018, and investment banking revenue fell a significant 9% year-on-year. EPS, too, was still down 2.8% overall compared to last year.

In the face of political headwinds and potential interest rate cuts not far down the road, Goldman Sachs is now in the process of shifting its focus away from trading to more stable revenue streams such as lending.

Evercore ISI analyst Glenn Schor said that, overall, he considered Goldman Sachs to have delivered "a pretty good quarter". With the stock’s current PE ratio of 9.16, cheap compared to the sector's 19.24, investors may be looking at Goldman as a bargain banking stock. According to Refinitiv data, out of 26 analysts surveyed the majority are recommending the stock as a hold - although some are more bullish, with six analysts holding "outperform" ratings and five recommending it as a "buy".

 

 

JP Morgan share price primed to test all-time-high

JP Morgan's share price may have only risen by 0.7% since reporting results, as of Monday's close, but it is tantalisingly close to the all-time high of $118.8 it hit in February 2018. As well as a 16% year-on-year profit increase, revenues were up 4% from a year earlier to $29.57bn, beating out expectations of $28.9bn.

 

 

This quarter, the bank also benefited from the resolution of a tax audit that added 23 cents to its EPS, which came in at $2.82, beating analysts' estimates of $2.50.

Refinitiv consensus analysis currently rates the stock a "buy", while EPS (TTM) is expected to grow 31.50% in the next year.

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