Today, we’ll look at the bank / financial companies in which clients have an interest or might have an interest, and look at valuation and expectations coming into the Q3 ’23 earnings releases. First, let’s have a look at the financial sector in general and historical revenue and EPS growth.market cap as of October 6th, 2023, but likely represent a larger “earnings weight” within the S&P 500, although the exact percentage is unknown.Q3 ’24: +9.9% EPS growth estimated Q1 ’24: +4.
The three-year “expected” average revenue and EPS growth for JPM today, is 7% and 11% respectively. With the stock trading at an average of 9x EPS today, it’s still too cheap in my opinion. Here’s the issue: all the smart value investors like Bill Nygren at Oakmark and Warren Buffet at Berkshire Hathaway point to Citi’s book value of $98 per share and tangible book value of $89 per share say, “Well, the stock’s too cheap at 0.4x book and 0.47x tangible book value trading at $40 per share” and they are right.
Citigroup at $40 per share is at the low end of its 7-year trading range reaching back to 2016. The stock is probably a lower-risk purchase here – even in front of earnings with its current 5% dividend yield – but Jane Fraser has to make a forceful statement with whatever Citigroup is contemplating in terms of cost reduction, and hopefully, it will translate into higher ROE. No question that – on a valuation basis – the stock is cheap.
The offset to that is that Schwab has always been rigorous about expense control and as NIM compresses, Schwab management can help offset the pressure with operating expense discipline.