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Deutsche Bank (DB) Rises 39.5% YTD: Can the Rally Continue?

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Shares of Deutsche Bank (DB - Free Report) have appreciated 39.5% so far this year against the industry’s fall of 15.1%. The stock has also gained considerably more than the S&P 500’s rise of 16.9% in the same time frame.

Notably, the recent price performance marks a rebound after the German lender’s shares witnessed a 5.7% decline in the last year. The deterioration in price resulted from its struggle to convince investors of its capability to stage a turnaround.

Despite the coronavirus-related concerns lingering in the markets, Deutsche Bank’s impressive price performance in 2020 is backed by the progress made in its efforts to improve financialswith major restructuring plans, divesture of unprofitable businesses and continued investments in businesses. These efforts helped the German lender to deliver profits in every quarter of 2020 reported so far against losses in last three quarters of 2019.

Year-to-Date Price Performance



Additionally, estimates for this Zacks Rank #3 (Hold) stock have been witnessing upward revisions, of late. Over the last 30 days, the Zacks Consensus Estimate for 2020 earnings moved north.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Now let’s check out some of the major factors that are likely to provide further impetus to Deutsche Bank’s stock.

Prudent Cost Management: The company’s efforts in reducing expenses have started bearing fruits. Notably, adjusted costs declined at a CAGR of 4.9% over the last three years (ended 2019), with the trend continuing in 2020 so far. Further, Deutsche Bank targets reducing adjusted costs to €19.5 billion by 2020-end through massive headcount reductions and offloading of unprofitable businesses.

Upbeat Performance of Capital Markets Unit: In 2020, the impressive performance of Deutsche Bank’s Investment Bank (“IB”) unit might support the uptrend in price. Remarkably, year to date, the investment bank has recorded 7.4 billion euros ($9 billion) in revenues, significantly up from that recorded in 2019.

IB unit haw largely benefited in 2020 so far from the high market volatility and prompt government stimulus. Deutsche Bank expects to report €9.1 billion in revenues from IB for 2020.

Growth Initiatives: Having gauged the rising digitization trend, Deutsche Bank, in 2020, has made considerable investments in the same to enhance customer experience. In July, the company collaborated with The Bank of New York Mellon (BK - Free Report) to develop a new foreign-exchange solution enabled by the application of programming interface.

Also, Deutsche Bank partnered with Alphabet’s (GOOGL - Free Report) Google Cloud to innovate and introduce the next generation of technology-based financial products. The companies have signed a Letter of Intent, with plans to sign a multi-year contract in a few months.

Further, following the opening up of the China markets to foreign financial firms, Deutsche Bank received a domestic fund custody license from China regulators, with which it will be able to directly provide custody-related solutions to funds established in China. Notably, Deutsche Bank follows Citigroup (C - Free Report) — the first U.S. bank to get such a permit this September.

Improved 2020 Guidance: At its Investor Day held in November, Deutsche Bank updated investors with new targets that the lender seeks to deliver based on the current scenario. The bank lowered its target to report adjusted costs of €17 billion by 2022 to €16.7 billion. Also, it said 2022 revenues will be seeing support from the IB unit of €8.5 billion, up €600 million from the prior expectations.

Favorable Zacks Industry Rank: Deutsche Bank is part of the industry, which currently carries a Zacks Industry Rank #103 (Top 40%).

Our Take

With expectations of a vaccine-driven gradual recovery of the global economy in 2021 due to the resumption of normal business activities along with Deutsche Bank’s expense management and expansion strategies, might continue to support the company’s stellar performance. Also, Deutsche Bank’s increased focus on growing the revenue-generating IB unit will likely support top-line growth.

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