The U.S. banking sector had benefited from high interest rates but it now faces challenges such as sluggish loan growth, potential defaults on commercial real estate loans, higher funding costs, and increasing credit card debt, etc. These factors brighten the prospects of investing in foreign banking stocks.
Amid this backdrop, investors could consider buying fundamentally strong bank stocks such as Barclays PLC (BCS), Akbank T.A.S. (AKBTY), and Deutsche Bank Aktiengesellschaft (DB). Before exploring the fundamentals of these stocks, let’s first understand what’s shaping the banking industry’s prospects.
The Federal Reserve’s interest rate hikes since March 2022 have affected the U.S. banking sector. Higher interest rates led to the collapse of three regional banks last year, but they have also boosted banks' net interest incomes.
However, U.S. banks now face the challenges of rising credit card debt, higher deposit costs, sluggish loan growth, funding cost pressures, stringent lending standards, slowing economic growth, and increased net interest expenses.
The benchmark interest rates, currently between 5.25%-5.50%, the highest in over two decades, have remained at this level due to sticky inflation and low unemployment levels. With inflation still far from its 2% target, many investors are concerned that the interest rate cuts might not happen this year.
Interest rates remaining higher for longer could increase funding costs and squeeze profit margins. Therefore, given the current positive industry trends abroad, exploring investment opportunities in quality foreign banking stocks could be wise.
Considering these conducive trends, let’s examine the fundamentals of the three Foreign Banks stock picks, starting with the third in line.
Stock #3: 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.
On April 2, 2024, BCS and AGL Credit Management LP announced an exclusive Cooperation Agreement and launched a new private credit investment platform, AGL Private Credit. This platform provides BCS clients with benefits like certainty, speed, and long-term investment alignment.
In terms of forward Price/Sales, BCS is trading at 1.24x, 51.2% lower than the industry average of 2.53x. The stock’s forward non-GAAP P/E of 7.24x is 31.4% lower than the industry average of 10.55x.
BCS’ total income for the fiscal first quarter that ended March 31, 2024, stood at £6.95 billion ($8.84 billion). Moreover, its profit attributable to shareholders of the parent amounted to £1.55 billion ($1.97 billion). Also, its earnings per ordinary share came in at 10.30p.
As of March 31, 2024, BCS’ total assets amounted to £1.58 trillion ($2.01 trillion), compared to £1.48 trillion ($1.88 trillion) as of December 31, 2023.
Analysts expect BCS’ revenue for the quarter ending September 30, 2024, to increase 5.4% year-over-year to $8.02 billion. Its EPS for fiscal 2025 is expected to rise 26.4% year-over-year to $1.90. Over the past six months, the stock has gained 54.3%, closing the last trading session at $10.91.
BCS’ strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, 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.
It has a B grade for Value and Sentiment. It is ranked #12 out of 90 stocks in the Foreign Banks industry. Click here for the additional POWR Ratings of BCS (Growth, Momentum, Stability, and Quality).
Stock #2: Akbank T.A.S. (AKBTY)
Headquartered in Istanbul, Turkey, AKBTY provides various banking products and services in Turkey and internationally. It operates through Consumer Banking and Private Banking, Commercial Banking, Corporate Banking, SME Banking, Treasury, Other, and Unallovated segments.
In terms of forward Price/Sales, AKBTY is trading at 1.97x, 22.1% lower than the industry average of 2.53x. The stock’s trailing-12-month Price/Cash Flow of 2.45x is 68.6% lower than the industry average of 7.81x.
For the fiscal first quarter that ended March 2024, AKBTY’s revenue stood at TL19.75 billion ($612.78 million), up 5% over the prior-year quarter. Its other income rose 230.4% year-over-year to TL1.40 billion ($43.48 million). For the same quarter, its net income increased 23.1% from the year-ago quarter to TL13.19 billion ($409.19 million).
In addition, as of March 2024, AKBTY’s total assets amounted to TL2.07 trillion ($64.32 billion), compared to TL1.26 trillion ($39.08 billion) as of March 2023.
Street expects AKBTY’s revenue for the quarter ending December 31, 2024, to increase 18.8% year-over-year to $1.46 billion. The company surpassed consensus revenue estimates in each of the trailing four quarters. AKBTY’s stock has gained 178.4% over the past year, closing the last trading session at $4.06.
AKBTY’s POWR Ratings reflect its robust prospects. It has an overall B rating, equating to Buy in our proprietary rating system.
AKBTY has a B grade for Value, Momentum, and Stability. Within the same industry, it is ranked #8. Get AKBTY’s Growth, Sentiment, and Quality ratings here.
Stock #1: Deutsche Bank Aktiengesellschaft (DB)
Headquartered in Frankfurt am Main, Germany, DB is a stock corporation that provides corporate and investment banking and asset management products and services to private clients, corporate entities, and institutional clients worldwide. It operates through Corporate Bank, Investment Bank, Private Bank, and Asset Management segments.
In terms of forward Price/Sales, DB is trading at 1.04x, 59% lower than the industry average of 2.53x. The stock’s forward Price/Book of 0.46x is 56.1% lower than the industry average of 1.05x.
DB’s total net revenues for the fiscal first quarter that ended March 31, 2024, increased 1.3% year-over-year to €7.78 billion ($8.42 billion). The company’s profit attributable to DB shareholders stood at €1.28 billion ($1.38 billion) and €0.69 per share, up 10.1% and 13.1% over the prior-year quarter, respectively.
For the quarter ending June 30, 2024, DB’s revenue is expected to increase marginally year-over-year to $8.25 billion. Its EPS for fiscal 2025 is expected to increase 55% year-over-year to $2.44. The stock has gained 57.6% over the past year to close the last trading session at $16.70.
DB’s POWR Ratings reflect this positive outlook. It has an overall rating of B, equating to Buy in our proprietary rating system.
DB has a B grade for Value. It is ranked #3 in the Foreign Banks industry. Click here to see DB’s ratings for Growth, Momentum, Stability, Sentiment, and Quality.
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 $0.11 (+1.01%) in premarket trading Friday. Year-to-date, BCS has gained 44.08%, versus a 11.35% 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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