How will earnings impact Citigroup, Morgan Stanley and Wells Fargo’s share prices?

The Wells Fargo [WFC] share price has gained more than 60.6% in the year to date (through 7 October). Shares in Morgan Stanley [MS] have also performed well in 2021 so far, with gains of 48.4%, but the Citigroup [C] share price trails both its retail bank peers – the stock is up by 20% in the same period.

All three retail banks have outperformed the S&P 500 so far this year, which has climbed 16.9%.

As the three retail banks prepare to announce third-quarter earnings, how will the stocks perform? Wells Fargo is expected to announce its results on 13 October, a few hours after the markets open. Meanwhile, Citigroup and Morgan Stanley are expected to report before markets open on 14 October.

Citigroup’s share price falls on potential sales drop

One of the reasons for the dreary Citigroup share price performance could be bearish sentiment around the company’s financial performance. Zacks analysts forecast Citigroup’s sales to fall slightly to $17.19bn, 0.6% down on last year’s equivalent figure of $17.3bn.

CNN Money analysts yield an even more pessimistic consensus sales forecast of $17.1bn. While Zacks and CNN Money analysts both expect Citi’s sales could be as low as $16.4bn, high estimates of $18bn could be cause for optimism among Citi investors.

Earnings per share (EPS) are also expected to increase year-over-year, with the Zacks consensus estimate of $1.73, standing 23.6% above the equivalent figure from last year. CNN Money analysts yielded a consensus EPS forecast of $1.74.

Citigroup’s second-quarter results were announced on 14 July and saw EPS come in 45.4% above analyst expectations. Sales were also 1.57% above those predicted. However, the Citigroup share price slipped 0.29% on the day, as despite beating expectations, revenue fell 12% year-over-year.

Wells Fargo could see a sales decline

According to Zacks analysts, Wells Fargo’s EPS could be between $0.85 and $1.22, with a consensus estimate of $1.04. This would represent year-over-year earnings growth of 85.71% if accurate. CNN Money analysts make similar forecasts, with a slightly lower low estimate of $0.83 and a lower consensus of $1.

Like Citi, Wells Fargo’s sales are expected to slide by 0.87% to $18.7bn, according to Zacks analysts. At $18.2bn, CNN Money’s consensus sales estimate is again more bearish than Zacks’s.

Wells Fargo had posted a 14.07% sales beat during its second-quarter results announcement on 14 July. Markets responded favourably, and the Wells Fargo share price rose 3.9% in response to the announcement.

However, Wells Fargo CEO Charlie Scharf cautioned that loan demand was struggling to rebound despite broader economic recovery. He highlighted low-interest rates as a headwind and said the bank’s “top priority continues to be building an appropriate risk and control infrastructure.”

Analysts forecast sales rise for Morgan Stanley

Uniquely among the three banks, Morgan Stanley’s sales are expected to rise. Zacks analysts yield a consensus sales estimate of $13.85bn, 18.82% up year-over-year, and broadly consistent with the consensus estimate of CNN Money’s panel.

However, Morgan Stanley is slated to see the smallest year-over-year uplift in EPS, with the Zacks consensus estimate of $1.70, just 6.92% up on last year’s equivalent total. Again, CNN Money analysts have a similar expectation at $1.69, although the panel’s estimates range from $1.54 to $1.78.

Morgan Stanley’s second-quarter earnings announcement on 15 July saw sales and earnings beat expectations by $400m and 12.12%, respectively. However, the impact on the Morgan Stanley share price was modest, with the stock climbing just 0.2% on the day.

Citigroup’s analyst price target outpaces peers

Analysts see the most growth potential in the Citigroup share price. CNN Money’s median 12-month Citigroup share price target of $84 is 16% up on its latest close. The equivalent figures for the Morgan Stanley share price of $112 and the Wells Fargo share price of $51 show an 11.6% and 6.2%, respective, expected upside.

Perceived overvaluation of the Morgan Stanley share price led Oppenheimer analyst Chris Kotowski to downgrade his rating from outperform to perform on 29 September, according to The Fly. With forward estimates unchanged, Kotowski said the downgrade was “based purely on valuation”.

Meanwhile, concerns from the US Federal Reserve over “widespread and pervasive” sales practice issues mean Wells Fargo’s assets are currently capped at $1.95trn, leading Morgan Stanley analyst Betsy Graseck to downgrade the bank from overweight to equal weight and reduce her Wells Fargo share price target from $49 to $46.