Every so often, I get asked: Is it time to invest in financial institutions again? I used to be a banking analyst and have advised my subscribers and management clients to largely avoid financial stocks for years. Since the financial crisis of 2008, I’ve stressed it even more.
And during earnings season, I definitely read their financial results with a wary eye. Ever since the 2008 financial crisis, Wall Street tends to overreact to financial stocks. As a result, any weakness impacts the broader market. That’s why it’s imperative that we understand what to expect from bank stocks this earnings season.
So let’s look at three top banks that have reported earnings in the past few days, and two more that are on deck to report tomorrow.
Earnings Report Card: BAC, JPM and WFC
Bank of America Corp. (BAC) announced today that it turned a profit in the first quarter. The bank reported net income of $2.98 billion, or $0.27 per share, on $21.40 billion in revenue. However, analysts were looking for $0.29 EPS on $21.50 billion in revenue, so Bank of America posted both a sales miss and an earnings miss. So BAC shares pulled back today, on an otherwise up day for the market. I consider BAC a D-rated sell.
JPMorgan Chase & Co. (JPM) posted first-quarter financial results before the market open yesterday. The bank reported earnings per share of $1.45 on $24.82 billion in sales. Analysts were looking for $1.40 earnings per share on $24.5 billion in sales. So JPM beat both sales and earnings expectations. Shares rallied to a three-month high after the report, and analysts lifted their earnings forecasts for FY 2015. I wouldn’t be surprised to see JPM get upgraded from its current C-rating once the latest results have been plugged into Portfolio Grader. In the meantime, please continue holding JPM.
Wells Fargo & Company (WFC) also announced first-quarter financial results prior to the market open yesterday. For the first quarter, Wells Fargo reported that its profit declined from $5.61 billion a year ago to $5.46 billion. Wells Fargo’s per share earnings was $1.04, which beat the $0.98 consensus estimate by 6%. Over the same period, revenue declined from $21.4 billion to $21.3 billion. This also beat analysts’ estimates of $21.24 billion in revenue. According to management, Wells Fargo’s revenue sources are balanced between spread and fee income. However, the fact remains that Wells Fargo wasn’t able to keep pace with Q1 2014. And with sales and earnings growth expected to stay in the single digits for the rest of the year, Wells Fargo isn’t going to be making waves any time soon. WFC is a C-rated hold.
Tomorrow is going to be another busy day for the financial sector. Among a number of smaller players, Citigroup Inc. (C) and Goldman Sachs Group Inc. (GS) are scheduled to report their quarterly results before the opening bell. Ifm not overly optimistic about either of these players. Citigroup is currently a C-rated hold in Portfolio Grader, while Goldman Sachs is a cautious buy at best. However, it will be interesting to see how they do, and how investors react to the news.
*Please note that earnings dates can change. All expected earnings dates mentioned are accurate as of the publishing date.