In 2023, the banking sector witnessed various challenges born out of operational complications and macroeconomic obstacles. However, with the upliftment of interest rates, these institutions successfully navigated their way toward enhanced revenue growth. Moreover, the high-interest rate scenario augments a promising future for the sector, which could lead to an escalation in net interest income and margins.
Given this backdrop, quality foreign bank stocks Banco Macro S.A. (BMA), Barclays PLC (BCS), and Deutsche Bank Aktiengesellschaft (DB) could be wise portfolio additions now.
The banking industry is undergoing a rapid transformation in 2024, driven by elevated interest rates, tightened monetary supply, more assertive regulations, and geopolitical challenges, bolstering the industry.
International banks offer various services and products to American customers, including individual and corporate clientele with operations in the U.S. In response to the financial strain induced by the 2020 pandemic, central banks around the world have taken measures to shield their economies. Benchmark interest rates were reduced to historic lows. Even though this provided critical support for immediate economic recovery, it impacted bank profitability significantly.
The journey to economic recovery was challenging, with progress inconsistent in developed nations – that host major foreign banks – and emerging markets. This inconsistency has caused global disruption in banking operations.
Given that numerous foreign banks possess a presence within the U.S. through offices chartered federally and state-wise, the Federal Reserve exerts a substantial influence over their domestic operations. The Fed's decision to elevate the benchmark interest rate is a promising development for the banking sector. Higher interest rates catalyze an increase in banks’ net interest income, thereby bolstering their financial standing.
The interest rates, currently set between 5.25%-5.5%, are anticipated to be elevated for some more months before projected rate cuts commence. This could increase funding costs upwards and squeeze profit margins. However, the industry is concurrently projected to demonstrate resilience and continue its trajectory of growth in the coming future.
Given the trends, it's time to examine the fundamentals of the three stocks to buy in the Foreign Banks industry, starting with the third in line.
Stock #3: Banco Macro S.A. (BMA)
Headquartered in Buenos Aires, Argentina, BMA provides various banking products and services to retail and corporate customers.
Its annualized dividend of $2.97 per share translates to a dividend yield of 9.14% on the current share price. Its four-year average yield is 3.72%. BMA’s dividend payments have grown at a 7.2% CAGR over the past five years.
BMA’s trailing-12-month ROTA of 1.90% is 74.9% higher than the industry average of 1.08%.
For the fiscal third quarter that ended September 30, 2023, BMA’s net interest income stood at ARS 112.69 billion ($135.74 million), while operating income increased 31.3% year-over-year to ARS 235.01 billion ($283.08 million).
For the same quarter, net income and earnings per average outstanding share stood at ARS 7.51 billion ($9.05 million) and ARS 11.71, respectively.
Street expects BMA’s revenue for the fiscal year ending December 2024 to increase 67.6% year-over-year to $2.81 billion. Its EPS is expected to be $3.36 for the same year.
The stock has gained 87.2% over the past nine months to close the last trading session at $32.52. Over the past three months, it has gained 60.5%.
BMA’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum and a B for Value and Quality. Within the Foreign Banks industry, it is ranked #13 out of 89 stocks.
To see additional POWR Ratings for Growth, Stability, and Sentiment for BMA, click here.
Stock #2: Barclays PLC (BCS)
Headquartered in London, the United Kingdom, BCS provides various financial services in the United Kingdom, Europe, the Americas, Africa, the Middle East, and Asia. The company operates through two segments: Barclays UK; and Barclays International divisions.
Its annualized dividend of $0.27 per share translates to a dividend yield of 3.50% on the current share price. Its four-year average yield is 2.82%. BCS’ dividend payments have grown at a 9.5% CAGR over the past five years.
BCS’ trailing-12-month cash per share of $20.82 is 248.6% higher than the industry average of $5.97, while its trailing-12-month CAPEX/Sales of 7.65% is 278.2% higher than the industry average of 2.02%.
For the fiscal third quarter that ended September 30, 2023, BCS’ total income increased 5.2% year-over-year to £6.26 billion ($7.87 billion), while attributable profit stood at £1.27 billion ($1.60 billion). Its basic earnings per share stood at 8.30p.
As of September 30, 2023, BCS’ cash and balances at central banks stood at £262.80 billion ($330.42 billion), compared to £256.35 billion ($322.31 billion) as of December 31, 2022.
Street expects BCS’ EPS for the fiscal year ending December 2024 to increase 7.2% year-over-year to $1.40, and revenue is expected to increase marginally year-over-year to $32.67 billion.
The stock has gained 12.4% over the past three months to close the last trading session at $7.42.
BCS’ robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
BCS has a B grade for Value and Momentum. It is ranked #9 within the same industry.
Click here for the additional POWR Ratings for BCS (Growth, Stability, Sentiment, and Quality).
Stock #1: Deutsche Bank Aktiengesellschaft (DB)
Headquartered in Frankfurt am Main, Germany, DB operates as a stock corporation, engages in the provision of corporate and investment banking, and asset management products and services to private clients, corporate entities, and institutional clients worldwide. Its business activities are divided into three segments: Corporate & Investment Bank (CIB); Private & Commercial Bank (PCB); and Asset Management (AM).
On February 1, DB announced plans to increase share repurchases and dividends by at least 50% year-over-year in 2024. The bank has received supervisory approval for a further share repurchase of €675 million ($726 million), which it aims to complete in the first half of 2024, having completed €450 million ($484 million) in share repurchases in 2023.
DB plans to recommend 2023 dividends of €900 million ($968 million), or €0.45 per share, up from €0.30 per share for 2022, at its Annual General Meeting in May 2024. DB also published updated guidance for a proposed dividend of €1 per share for the financial year 2025, subject to the delivery of financial targets and to a 50% payout ratio.
Its annualized dividend of $0.32 per share translates to a dividend yield of 2.41% on the current share price. Its four-year average yield is 1.17%. DB’s dividend payments have grown at a 20.3% CAGR over the past five years.
DB’s trailing-12-month cash per share of $98.87 is significantly higher than the industry average of $5.97.
For the fiscal fourth quarter that ended December 31, 2023, DB’s net revenues increased 5.4% year-over-year to €6.66 billion ($7.16 billion), while profit before tax stood at €698 million ($750.73 million).
For the same quarter, profit attributable to DB shareholders and earnings per share stood at €1.26 billion ($1.36 billion) and €0.67, respectively. As of December 31, 2023, DB’s trading assets stood at €125.28 billion ($134.74 billion), compared to €92.87 billion ($99.88 billion) as of December 31, 2022.
Street expects DB’s revenue for the fiscal year ending December 2024 to increase marginally year-over-year to $31.54 billion. Its EPS is expected to be $2.09 for the same year.
The stock has gained 25.9% over the past nine months to close the last trading session at $13.48. Over the past six months, it has gained 25.6%.
DB’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
DB has a B grade for Value, Momentum, and Sentiment. Within the same industry, it is ranked #7.
Beyond what we’ve stated above, we have also rated the stock for Growth, Stability, and Quality. Get all ratings of DB here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
BCS shares rose $0.05 (+0.67%) in premarket trading Tuesday. Year-to-date, BCS has declined -5.20%, versus a 3.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Neha Panjwani
From her school days, Neha harbored a profound fascination for finance, a passion that steered her toward a career as an investment analyst following the completion of her bachelor's degree in commerce. Currently enrolled in the CFA program, Neha is dedicated to further enriching her comprehension of investment fundamentals. Neha's primary objective is to aid retail investors in discerning optimal investment opportunities by diligently evaluating crucial aspects of financial instruments, with a primary focus on stocks and ETFs. Her commitment lies in empowering individuals to make informed and strategic investment decisions in the dynamic world of finance.
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