The big financials have pretty much reported now and the results were less than wonderful. Revenue growth was weak and year-over-year profits were down, and analysts have been lowering their estimates for 2015.
Net interest margins are still low and legal costs are still a big part of the profit picture. The stocks are flat so far in 2015 and the question now for investors becomes, which, if any, are ready to buy?
Unfortunately for the big financials, their reports were lackluster at best and the shares just are not cheap enough to justify a purchase as the current valuations.
Let’s take a look at three of the biggest financials:
3 Financials to Avoid: Bank of America Corp (BAC)
Wall Street loves Bank of America Corp (NYSE:BAC) after its report but I really don’t understand why.
Revenues declined from $21.7 billion in 2013 to just $19 billion in the fourth quarter of 2014. Earnings came in at 25 cents a share below last year’s 29 cents, and below the 31-cent-per-share estimate from Wall Street. Estimates for both 2015 and 2016 are being lowered after the weak report.
While I pay little attention to the level of the laughably inaccurate estimates of financials from analysts, the direction of the guesses about profits in the future can be instructive. Business is not horrific; it is just not very good.
The stock is not particularly cheap with Bank of America shares trading hands at 1.1 times tangible book value. I am very stingy on the big financials and only consider them when they trade at a pretty good-sized discount to tangible book.
3 Financials to Avoid: Citigroup Inc (C)
Things are pretty much the same at Citigroup Inc (NYSE:C ) as we start 2015. Legal costs and settlements as well as weak bond trading revenues were the leading causes of a more than 80% plunge in profits.
Revenues were flat at $17.8 billion on a year-over-year basis. The stronger dollar also hurt profits in the final quarter of the year. As was the case of Bank of America, the core businesses were not awful, but just were not very good.
Analysts expect legal costs to be a lot lower next year for Citigroup but they are still lowering estimates for the next two years as the big financials struggle to grow bottom-line profits.
The stock is trading at right around 85% of tangible book value, so I would hold off buying for now. The stock has fallen by 12% so far in 2015 but I think it needs to get below $45 to be a buy.
3 Financials to Avoid: JPMorgan Chase & Co. (JPM)
Things were about the same at JPMorgan Chase & Co. (NYSE:JPM), but on the upside Jamie Dimon does a much better job with earnings reports and conference calls.
Earnings per share were $1.19 compared to $1.30 in the fourth quarter of 2013. Revenues for the quarter were $23.6 billion, down 2% compared to last year.
For the full year profit was a record $21.8 billion, compared with $17.9 billion. Profits were below the always highly accurate estimated of $1.30 in the quarter. As with the other two big financials, expectations for 2015 and 2016 have lowered in recent weeks.
You have to love bankers like Dimon, who when asked this month about legal costs, barked:
“Banks are under assault. In the old days, you dealt with one regulator when you had an issue. Now it’s five or six. You should all ask the question about how American that is, how fair that is.”
I am a big fan of the JPMorgan CEO, but at 1.25 times book value the stock is just not cheap enough to buy.