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number cruncher

What are we looking for?

U.S. banks recently reported quarterly earnings and there is a general theme of strong results, with many names passing stress tests with flying colours as pandemic restrictions ease. There were even some dividend increases and share buybacks.

Banks are known to possess some of our favourite investment qualities. As a result, my team member Allan Meyer and I thought we would take a closer look at the U.S. sector using our investment philosophy based on safety and value.

The screen

We started our search by looking at the bank sector in the S&P 500 index. Then we looked at market capitalization as a safety factor; larger companies tend to have more stable and diverse revenue streams. The list is sorted on this, from largest to smallest. Dividend yield is the annualized projected dividend divided by the recent share price. Dividends can reflect safer and steadier earnings profiles, and Allan and I like to get paid while we wait for capital appreciation. Debt-to-equity is our final safety measure; it is the total debt outstanding divided by shareholders’ equity. A smaller number indicates lower leverage or debt levels. And as we like to say, it’s hard to go bankrupt if you have little to no debts.

Price-to-earnings (P/E) is the recent share price divided by the projected earnings per share. It is a valuation metric; the lower the number, the better the value. Earnings momentum is the change in annualized earnings over the past quarter. A positive number implies earnings are growing while the opposite is true for a negative number. Positive earnings momentum over the long term should translate to share price gains and perhaps dividend hikes. Price-to-book (P/B) compares the recent share price with the book or equity value per share. This is another valuation metric; a lower number is preferred. ROE is a profitability ratio (net income divided by shareholders’ equity); a higher number is better.

We’ve also calculated the average and median for all metrics to allow for better comparability and provided the 52-week total return to track performance.

What we found

Banking on safety and value in strengthening U.S. sector

CompanyTickerRecent Price (US $)Mkt. Cap. (US$ Bil.)Div. Yld. (%)Debt/Equity (%)P/EEarns. Mom. (%)P/BROE (%)52W Ttl. Rtn. (%)
JPMorgan Chase & Co.JPM-N156.03472.32.3194.125.243.01.712.068.9
Bank of America Corp.BAC-N41.15352.61.7165.113.326.61.36.877.8
Wells Fargo & Co.WFC-N45.07186.30.9147.112.2253.71.01.079.3
Citigroup Inc.C-N70.41145.52.9243.68.149.60.75.940.8
US BancorpUSB-N57.5785.82.997.612.723.81.710.062.0
PNC Financial ServicesPNC-N192.7981.92.662.414.432.11.511.893.2
Truist Financial Corp.TFC-N56.0375.43.259.411.89.21.16.858.5
First Republic BankFRC-N190.5533.60.515.137.910.22.69.381.2
SVB Financial GroupSIVB-Q565.2130.70.010.520.932.73.116.8164.8
Fifth Third BancorpFITB-Q38.4427.12.868.911.637.91.26.2111.4
Huntington BancsharesHBAN-Q14.3521.24.265.710.264.31.16.871.5
KeyCorpKEY-N20.7220.13.681.710.038.61.17.981.1
Citizens Financial GroupCFG-N46.0519.63.437.820.060.10.94.699.3
Regions Financial Corp.RF-N20.2619.53.119.79.949.51.16.294.7
M&T Bank Corp.MTB-N145.9318.83.027.412.214.71.18.748.1
Comerica Inc.CMA-N71.7310.03.836.411.788.41.26.2110.2
Zions BancorporationZION-Q53.268.72.636.910.961.01.16.667.0
People's United FinancialPBCT-Q17.217.44.220.912.73.21.06.760.3
Average89.82.677.214.849.91.47.881.7
Median28.92.960.912.238.21.16.878.6

Source: Refinitiv Eikon & Wickham Investment Counsel Inc.

Huntington Bancshares Inc. and Regions Financial Corp. score well across the board for safety and value. Truist Financial Corp. looks good but fall short on earnings momentum. Huntington also offers the highest dividend yield along with People’s United Financial Inc. SVB Financial Group has the lowest debt levels and boasts the best profitability (ROE). Citigroup Inc. is the most attractive from a valuation standpoint with the lowest P/E and P/B, but also carries the most debt. Wells Fargo & Co. posted the strongest earnings momentum and it should be noted that it recently hiked its dividend.

BMO Equal Weight U.S. Banks Hedged to CAD Index ETF (ZUB) is an option for investors who like the sector, but prefer to diversify away individual security and currency risk.

Investors should contact an investment professional or conduct further research before buying any of the securities listed here.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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