You might have expected financial stocks to be among the worst performers in the S&P 500 this year, in light of three high-profile bank failures, the pressure from the decline in market values for banks’ bond holdings and the competition for deposits as interest rates have risen. But the financial sector is down 2.8% this year with dividends reinvested. Maybe this is because bank stocks are inexpensive enough to attract long-term investors.
The financial sector has the second lowest P/E of the 11 sectors and is trading at 71% the valuation for the full S&P 500. But that type of discount for the sector is typical. Now let’s look at the largest 20 U.S. banks by June 30 total assets and see how their current forward P/E ratios stack up to their longer-term averages:Click here for Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.
But you can be sure that as soon as the Fed makes a clear change in policy, banks will lower their deposit rates quickly, to enhance their net interest margins. Analysts’ favorite big-bank stocks Leaving the 20 largest U.S. banks in the same order, here are summaries of ratings and consensus price targets among analysts polled by FactSet:
Earnings estimates Let’s round up expectations for the largest 20 banks for third-quarter results. First, here are consensus estimates for third-quarter earnings per share, with actual results for the previous four quarters: Among the Big Six U.S. banks, only JPMorgan Chase and Wells Fargo are expected to show increased third-quarter profits from a year earlier.
Charles Schwab Corp. SCHW has been hit hard by NIM contraction, as brokerage customers have moved money from the company’s bank subsidiary in search of higher yields. It is easy for a client to shop for CD or money market yields among many banks, within a brokerage account. This phenomenon is known as “cash sorting,” and KBW analyst Kyle Voigt wrote in a note to clients on Oct. 2 that he believed the brokerage industry was in the “latter innings” of cash sorting for this interest-rate cycle.