Never short on dramatics, Wall Street greeted April’s restructuring plan of Deutsche Bank AG (USA) (NYSE:DB) with a firm kick toward the lower extremities.
Key to the German lender’s refocused strategy is the trimming down of lower-profitability business units, such as investment and retail banking, and the majority stake sale of Deutsche Postbank AG (OTCMKTS:DEUPF).
However, investors and financial analysts alike were confused by Deutsche Bank’s ambiguity regarding its five-year strategic plan, which included scant details on how management intended to continuously grow their bottom line.
This incoherency panicked shareholders, leading to a sharp decline in DB stock’s price.
Other analysts were less diplomatic in their assessment of Deutsche Bank. TheStreet gave the lender a “D+” rating, noting a higher ratio of fundamental weaknesses — poor operating cash flow for starters — against strengths. The investment advisory journal also noted bearish technical trends in DB stock, in case there were any doubts as to how they felt. Investor’s Business Daily affirmed much of the same, giving an “IBD Composite Ranking of 34 out of 99,” a proprietary indication that 66% of other publicly traded companies are performing better than DB stock.
Market facts, at least within the immediate timeframe, don’t do much to assist Deutsche Bank. For instance, over the last four quarterly reports, there is a 50/50 split between earnings beats against misses. Revenue has declined an average of nearly 9.5% between the fourth quarter of 2014 and the prior three quarters, which suggests that an earnings beat will be difficult come April 29, when Q1 results for the new year are released.
Also weighing down investor sentiment is recent choppiness in DB stock. Between March 23 and April 24, the average weekly performance is only 0.11%. Given similar circumstances, historical probabilities indicate yet another 50/50 split in whether DB stock will be bullish or bearish over the next five weeks.
So why would anyone bother picking up shares of Deutsche Bank?
Over a longer-term analysis, DB stock has a propensity to bounce back sharply from selloffs. For example, while its weekly performance is rather ho-hum, its monthly performance over the past 90 days is 5.9%. Based on historical market dynamics, there is an 83% chance that DB stock will be trading hands at around $40 per share by the end of July 2015.
Finally, there is a technical argument. Since collapsing after the 2008 global financial crisis, DB stock has formed a bullish pennant formation, characterized by the share price range funneling into an ever-narrowing pattern. According to the technical theory, the pressurized focal point of the pennant leads to an explosive breakout move.
In the meantime, Deutsche Bank shares will almost certainly suffer daily gyrations. But those willing to ride the chop will likely profit handsomely when the summer season comes around!
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
