JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) , the two big banks, have market capitalization of $363.1 billion and $195.4 billion, respectively. Both are part of the same industry, which has a Zacks Industry Rank #30 (top 12%). Our back-testing shows that the top 50% of the Zacks ranked industries outperform the bottom 50% by a factor of more than two to one.
The performance of major banks on the S&P 500 index in fourth-quarter 2017 was decent, with 2.4% year-over-year earnings growth. Notably, the results for both JPMorgan and Citigroup improved on the back of rise in lending activities and economic stability. Nonetheless, both the companies recorded significant one-time non-cash charge related to the tax reform.
Going forward, both JPMorgan and Citigroup projects lower tax rates to benefit profitability. Also, both are influenced by almost similar economic backdrop as they have same business operations. Also, the improving rate environment and potential lesser regulations will be beneficial for them.
In terms of price performance, JPMorgan’s shares have gained 5.1% so far this year while Citigroup’s shares have rallied just 1%.
As businesses of both the banks are almost similar, let’s dig deeper into to the financials, before deciding which one is the better pick.
JPMorgan’s current-year earnings are projected to grow 28.9% while sales are expected to increase 8.1%. Additionally, the company has a dividend yield of 2.00%, above the industry average of 1.98%.
Further, JPMorgan’s trailing 12-month return on equity (ROE) reflects its superiority in terms of utilizing shareholders’ fund. The company’s ROE of 11.63% compares favorably with 10.68% for the industry.
Analysts seem to have a bullish stance about the stock’s financial performance. For 2018, over the past 30 days, the stock has witnessed three upward revisions and one downward revision.
Notably, JPMorgan carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, the company looks overvalued with respect to its P/B ratio of 1.69 compared with the industry average of 1.57. Also, its PEG ratio of 1.89 is above the industry average of 1.48. Moreover, the stock has a Value Score of F. Our research shows that stocks with a Value Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential. But this is not the case here.
Citigroup’s earnings for the current year are projected grow 20% while sales growth is estimated to be 3.2%. Further, the company has a dividend yield of 1.71%, which is below the industry average of 1.98%.
Citigroup has a trailing 12-month ROE of 7.60% compared with the industry average of 10.68%. This shows that the company is less efficient in reinvesting its earnings.
Analysts seem optimistic about the stock’s earnings prospects. Over the last 30 days, the stock has witnessed seven upward revisions (against no downward revision) for 2018.
Citigroup carries a Zacks Rank #2. Moreover, the stock seems undervalued with respect to its P/B ratio of 1.05, which is below the industry average of 1.57. The company’s PEG ratio of 1.09 is below the industry average of 1.48. Further, the stock has a Value Score of B.
Both JPMorgan and Citigroup look well positioned in terms of their Zacks Rank and positive estimate revisions. Though Citigroup has a favorable value score, JPMorgan seems to be a better pick given the higher earnings and sales growth prospects, superior ROE and dividend yield.
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