Comerica, Wells Fargo & Company, JPMorgan Chase, Bank of America and U.S. Bancorp

Laveta Brigham

For Immediate Release Chicago, IL – August 14, 2020 – Today, Zacks Equity Research discusses Major Regional Banks, including Comerica Incorporated CMA, Wells Fargo & Company WFC, JPMorgan Chase & Co. JPM, Bank of America Corporation BAC and U.S. Bancorp USB. Link: https://www.zacks.com/commentary/1040983/low-rates-coronavirus-mar-major-regional-bank-stock-outlook The Zacks Major Regional Banks industry includes the nation’s […]

For Immediate Release

Chicago, IL – August 14, 2020 – Today, Zacks Equity Research discusses Major Regional Banks, including Comerica Incorporated CMA, Wells Fargo & Company WFC, JPMorgan Chase & Co. JPM, Bank of America Corporation BAC and U.S. Bancorp USB.

Link: https://www.zacks.com/commentary/1040983/low-rates-coronavirus-mar-major-regional-bank-stock-outlook

The Zacks Major Regional Banks industry includes the nation’s largest banks in terms of assets, with most operating globally. Financial performance of these banks largely depends on the nation’s economic health. As the banks are involved in a number of complex financial activities, they are required to meet the stringent regulations set by the Federal Reserve and other agencies.

In addition to traditional banking services, which are the source of interest income, major regional banks provide a wide array of financial services and products to retail, corporate as well as institutional clients, both domestic and global. The services offered include credit and debit cards, wealth management, as well as investment banking, among others. So, a large source of revenues for these banks comprises fees and commission earned from these services.

Prominent names in this industry include Comerica and Wells Fargo.

Here are the three major industry themes:

  • Major regional banks substantially benefit from higher interest rates. However, in March, the Fed slashed the interest rates to near zero to support the U.S. economy from coronavirus-related mayhem. The central bank further signaled that there is no chance of raising rates in the near term. Thus, this will continue to hurt the banks’ net interest margin and net interest income. Also, economic slowdown and ambiguity have been impacting business activities and in turn, resulting in a decline in new investments. So, this is likely to result in lower demand for corporate loans, in turn hitting banks’ revenues largely.
  • Major regional banks’ asset quality is expected to continue deteriorating with the slowing down of economic growth on the coronavirus outbreak, resulting in a rise in delinquency rates. Also, banks have been building extra provisions in order to tide over unexpected defaults and payment delays. Thus, this will majorly hurt their bottom line in the near term.
  • The major regional banks are investing considerably in AI and other digital platforms to improve online and mobile banking services, as well as ward off competition from Fintech and other large tech companies. While technological investments are expected to result in a rise in operating costs to some extent in the near term, the efforts will help the banks save time and provide less error-prone services.

Zacks Industry Rank Indicates Bleak Picture

The Zacks Major Regional Banks industry is a 15-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #223, which places it in the bottom 12% of nearly 253 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of disappointing earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since December 2019-end, the industry’s earnings estimates for the current year have been downwardly revised by 53%.

Before we present a few stocks that you may want to consider for your portfolio despite near-term blip in the industry, let’s take a look at the industry’s recent stock market performance and valuation picture.

Industry Underperforms Sector and S&P 500

The Zacks Major Regional Banks industry has underperformed the S&P 500 composite and its own sector over the past year.

While the stocks in this industry have collectively lost 14.8% over this period, the Zacks S&P 500 composite has rallied 14.4%. The Zacks Finance sector has declined 6.6% in the said time frame.

Industry’s Valuation

One might get a good sense of the industry’s relative valuation by looking at its price-to-tangible book ratio (P/TBV), which is commonly used for valuing banks because of large variations in their earnings results from one quarter to the next.

The industry currently has a trailing 12-month P/TBV of 1.58X. This compares with the highest level of 2.68X, lowest of 1.21X and median of 2.11X over the past five years. Additionally, the industry is trading at a discount compared with the market at large, as the trailing 12-month P/TBV for the S&P 500 composite is 15.23X, as the chart below shows.

As finance stocks typically have a lower P/TBV ratio, comparing major regional banks with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/TBV ratio with that of the broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/TBV came in at 3.40X. This is above the Zacks Major Regional Banks industry’s ratio, as the chart below shows.

Bottom Line

Despite the adverse impact on revenues due to the virus outbreak and the resultant economic slowdown, technological investments and efforts to find new avenues will likely support major regional banks’ financials in the near term.

Thus, investors may keep an eye on a few major regional bank stocks, given their decent earnings outlook.

None of the stocks in the Zacks Major Regional Bank space currently sport a Zacks Rank #1 (Strong Buy) or 2 (Buy). So, we are presenting three stocks with a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank stocks here.

JPMorgan: The stock has lost 26.1% so far this year. The company’s long-term (three-five years) projected earnings growth rate of 5% promises rewards for shareholders.

Bank of America: The stock has declined 24.1% year to date. The company’s long-term (three-five years) projected earnings growth rate is 7%.

U.S. Bancorp: The stock has surged 36.2% year to date. The company’s long-term (three-five years) projected earnings growth rate of 6% promises rewards for shareholders.

These Stocks Are Poised to Soar Past the Pandemic

The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.

See the 5 high-tech stocks now>>

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.

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JPMorgan Chase Co. (JPM) : Free Stock Analysis Report
 
Comerica Incorporated (CMA) : Free Stock Analysis Report
 
U.S. Bancorp (USB) : Free Stock Analysis Report
 
Bank of America Corporation (BAC) : Free Stock Analysis Report
 
Wells Fargo Company (WFC) : Free Stock Analysis Report
 
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