This week our WR Banks & Brokers Index was up +2% WoW, outpacing the S&P 500 by 100bps but lagging the S&P Fins. (+3%). After a week packed with earnings, the clear winners, namely JPM (+8%), Citi (+6%), and MS (+6%), were firms that either absolutely crushed earnings or outlined a clear path to delivering meaningful long-term shareholder value. BK (-5%) and WFC (-2%) suffered from lackluster core results and disappointing outlook commentary, with NTRS (-3%) rounding out the bottom three as shares traded in sympathy following BK’s tough 1Q print. Looking at YTD trends, no change to our top three performers in SF (+43%), Citi (+34%) and EVR (+31%), but there was a slight shakeup among the bottom three, with BK (+3%) joining fellow laggards WFC (+3%) and LAZ (+2%).
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Citi reported strong results for 1Q19 (see note), with shares outperforming Money Center peers by ~50bps following the print. Management gave detailed guidance for FY19 across revenue (both NII and fee income), expense, and other items (see below); we see room for meaningful upward revisions to consensus with guidance implying as much as ~4% upside to current street estimates for 2019 (we are 2% above). Valuation is also quite compelling with shares trading at a <5% premium to TBV, versus 12% ROTCE potential in 2019, and mid-teens longer term. Our updated PT of $77 (up from $75) implies +14% upside to the current share price, supporting our Outperform rating.
1Q Core Beat on Better FICC, IBD Fees and Better Cost Control; Expect Shares to Outperform. Citi reported 1Q19 EPS of $1.87 vs. our est. of $1.75 and cons. of $1.80. Adjusting for the lower tax rate (-$0.05), core EPS was $1.82, above both our estimate and cons. Versus our estimate, the core beat was driven by better revenues in ICG (+0.03) and better efficiency (+$0.05), partially offset by lower revenues in Global Consumer (-$0.01), as better results in Branded Card were more than offset by weaker results in International Consumer. For additional detail on sources of earnings surprise, see our earnings variance sheet on pg. 2. Bottom Line: Citi has been the best performing stock among the big banks YTD (+30%, vs. peers and BKX +16%), and we expect to see continued follow-through given a compelling valuation (~1.03x TBV versus ROTCE of 11.9%), and strong 1Q results which showcased good expense discipline in a challenging revenue backdrop.
This week our WR Banks & Brokers Index was up +2% WoW, outpacing the S&P 500 by 100bps but tracking largely in line with the S&P Fins. (~2%), with clear winner JPM (+6%) boosted by an impressive FY1Q19 print. BAC (+4%), MS (+4%) and STT (+4%) were the other notable outperformers, with BAC / MS benefiting from the positive readacross from JPM earnings (see first look). WFC was the notable laggard this week (-5%) following a weak core print and more conservative NII growth outlook (see slide 4), with NTRS (-1%) and EVR (+1%) rounding out the rest of the bottom three. Looking at the YTD leaderboard, SF (+42%), EVR (+33%) and Citi (+30%) remain at the top, with WFC (+1%), LAZ (+5%) and SCHW (+9%) rounding out the bottom three.
Our WR Banks & Brokers Index was up +5% WoW, which we note continues to outpace both the S&P 500 (+2%) and S&P Fins. (+3%). Strength was driven by robust performance across SF (+9%), MS (+6), and RJF (+6%), with WFC (+1%), BK (+1%) and EVR (+3%) the biggest laggards. Following the strong week, our WR Bank / Broker index is now tracking in line with the broader market YTD (+15%) and ~400bps ahead of the S&P Fins. (+11%). SF (+39%), EVR (+31%), and Citi (+26%) still atop the leaderboard, followed by GS (+21%), LPLA (+18%) and BAC (+18%). LAZ (+3%) and AMTD (+6%) remain in the bottom three joined by new-entrant WFC (+6%) in place of SCHW (+7%) as investors remain wary on the name following the recent leadership shake-up (see slide 11). For folks looking to get a sense of how our coverage has been trading from a technical perspective, we would urge investors to look at Technical Analyst Rob Ginsberg’s excellent work on the space.
Our WR Banks & Brokers Index was up +2% WoW, outpacing the gains in both the S&P 500 (+1%) and S&P Fins. (+1%). The biggest laggards this week were WFC (flat) and BK (flat), with Wells lagging following the announcement of CEO Tim Sloan’s retirement. The outperformers this week were RJF (+5%), ETFC (+3%), SF ( +3%), and EVR (+3%), which we attribute to optimism surrounding favorable 1Q earnings setup for RJF and ETFC in particular (see our preview). YTD trends remain less encouraging as our WR Bank / Broker index (+10%) continues to lag the broader market (+13%), with SF (+27%), EVR (+27%), and Citi (+20%) still atop the leaderboard, whereas LAZ (-2%), AMTD (+2%), and SCHW, (+3%) remain at the bottom of the pack.
After the close (3/28/19), the Fed released documents providing additional information on CCAR models, consistent with the Fed’s earlier announcement that it will begin to improve transparency on the stress test process (see prior press release). Included with the documents was the summary of other model changes that the Fed is implementing for this year’s exam which is provided annually. We have noted in prior years that this is always the most interesting part of these documents and allows for the most actionable calls, because it is 1) filled with useful information on PPNR / loan loss expectations for the coming stress test, and 2) very often missed by investors because it is usually tucked away somewhere that is not very noticeable (this year they are in Appendix A).
1Q has been a bit of a roller coaster ride. The initial setup was looking good for stock-pickers, as our WR Bank & Broker Index meaningfully outperformed out of the gate with significant performance dispersion across the group. But as we got deeper into 1Q, investor optimism started to wane as revenue cracks emerged: IB activity stalled due to the government shutdown; trading failed to keep pace with tough year-ago comps; and a more dovish Fed weighed on NIM expectations. Even the strong equity market rally prompted mixed feedback as this resulted in significant declines in higher-yielding client cash. Following the strong start to 2019, the banks / brokers have since erased those early gains, prompting the all-important question…
Just a brutal week for our WR Banks & Brokers Index which meaningfully underperformed (-6% WoW), tracking well behind the S&P 500 (-1%) and the S&P Fins. (-5%). The biggest laggards this week were AMTD (-10%), ETFC (-8%), SCHW (-8%), BAC (-8%), and LPLA (-8%) as the Fed’s dovish remarks weighed disproportionately on more asset sensitive financials. Following this week’s selloff YTD performance for the WR Bank / Broker index (+8%) is now lagging the broader market (+12%), and while the leaderboard remains largely the same, including SF (+24%), EVR (+23%), and Citi (+17%), the bottom of the pack has changed somewhat and now includes some of the eBrokers (AMTD +2%, SCHW +1%), in addition to LAZ (-3%).
Our WR Banks & Brokers Index rebounded nicely this week (+320bps WoW), tracking slightly ahead of the S&P 500 (~290bps) and the S&P Fins. (~300bps). Share performance across the group was strong, with NTRS (+6%), Citi (+5%), MS (+5%), and ETFC (+5%), and SCHW (+5%) the top performers, while AMTD (+1%), GS (+1%), LAZ (+1%), and EVR (+2%) the notable laggards. WR top performers YTD remain SF (+34%), EVR (+26%), and Citi (+25%), reflecting strong 4Q18 results and positive EPS momentum, with LAZ (-2%), MS (+9%), and SCHW (+9%) still underperforming following mixed 4Q18 results / conservative earnings guidance.
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