Shares of major global bank UBS Group AG (UBS - Free Report) have tumbled more than 25% so far this year on NYSE. This Zurich, Switzerland-based bank’s growth continues to be challenged by a strained operating environment, fraught with negative interest rates and global growth concerns.
Further, management has warned of persistent market volatility and underlying macroeconomic uncertainties, aggravated by the Brexit vote, which will result in sustained client risk aversion and low transaction volumes. It added that the current scenario is unlikely to change in the near term.
Also, the stock has been witnessing negative estimate revisions for 2016 and 2017, over the last 30 days. UBS Group, with a market capitalization of approximately $52 billion, is exposed to a number of claims and regulatory matters which are likely to weigh on its expense base. All these concerns have made investors bearish on the stock.
In addition, there a few aspects that we believe will lead to further selloff in the stock.
Earnings Weakness: UBS Group has recorded earnings plunge of 34.5% over a period of three to five years. Continuing with this trend, earnings are expected to decline 33.3% in 2016.
Further, the company’s long-term (3–5 years) estimated earnings growth rate of 4.1% is below the industry average of 7.3%.
Leverage: UBS Group debt/equity ratio stands at 1.95, compared with the industry average of 1.06, indicating a relatively higher debt burden.
Stock Looks Overvalued: UBS Group stock looks overvalued with respect to its Price-to-Earnings (P/E) and PEG ratios. It has a P/E ratio of 12.16, compared with the industry average of 11.39. Also, the company’s PEG ratio of 2.99 is below the industry average of 2.19.
Stocks Worth Considering
Foreign banks that are worth a look include Banco Macro S.A. (BMA - Free Report) , The Bank of Nova Scotia (BNS - Free Report) and Grupo Financiero Galicia S.A. (GGAL - Free Report)
Banco Macro has been witnessing upward estimate revisions over the last 60 days. The company’s shares have jumped more than 35% so far this year.
Over the last 60 days, Bank of Nova Scotia has been witnessing upward estimate revisions. Further, the stock has surged nearly 30% so far this year.
Grupo Financiero has been witnessing upward estimate revisions over the last 60 days. Also, the company’s shares have increased nearly 12% so far this year.
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