The earnings season is drawing to a close, with results from nearly 400 S&P 500 members already out. Performance of Major Banks on the index (accounting for nearly 45% of the Zacks Finance sector's total earnings) in third-quarter 2018 was quite impressive, with 25.2% year-over-year earnings growth.
Today, we are discussing two big banks in the United States — JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) — with market capitalization of $362.7 billion and $164.4 billion, respectively. Both are part of the same industry, which has a Zacks Industry Rank #87 (top 34%). Our back-testing shows that the top 50% of the Zacks ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Notably, the results for both JPMorgan and Citigroup improved on the back of rise in lending activities and economic stability. Further, improvement in equity trading activities, decent investment banking performance and lower credit costs supported the results.
Going forward, both JPMorgan and Citigroup expect lower tax rates to continue benefiting profitability. Also, both are influenced by almost similar economic backdrop as they have the same business operations. Further, the improving rate environment, rise in loan demand and potential lesser regulations will be beneficial for them.
Both JPMorgan and Citigroup carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Let's take a closer look at how JPMorgan and Citigroup are stacked up against each other in terms of certain key metrics.
So far this year, shares of JPMorgan have gained 2%, while Citigroup has lost 9.6%. Further, over the same time period, the industry has declined 6.9%. So, JPMorgan clearly has outperformed Citigroup.
Year-to-Date Price Performance
Both the banks have been meaningfully deploying capital in terms of dividend payments and share repurchases to enhance shareholder value.
JPMorgan received the Fed’s approval for its 2018 capital plan that includes nearly 43% dividend hike and $20.7 billion share repurchase authorization. It has a dividend yield of 2.95%.
Dividend Yield: JPM
Following the Fed’s approval for its 2018 capital plan, Citigroup announced a 41% dividend hike and $17.6 billion share repurchase authorization. Also, the bank has a dividend yield of 2.68%.
Dividend Yield: C
As you see in the above charts, JPMorgan has an edge over Citigroup here as the former’s dividend yield is not onlybetter than the latter’s but is also above the industry average of 2.79%.
Both JPMorgan and Citigroup have a higher debt-to-equity ratio compared with the industry average of 0.94. But JPMorgan with a leverage ratio of 1.17 has an edge over Citigroup with the same of 1.32.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12 months for JPMorgan and Citigroup is 13.91% and 9.42%, respectively. Further, with industry’s average of 11.62%, JPMorgan is more efficient in using shareholders’ funds.
Hence JPMorgan holds an edge here.
Earnings Estimate Revisions & Growth Projections
Both JPMorgan and Citigroup have seen the Zacks Consensus Estimate for 2018 earnings being revised upward. Over the past 30 days, earnings estimates have moved 1.8% and 1.5% upward for JPMorgan and Citigroup.
For JPMorgan, the consensus estimate for earnings per share is pegged at $9.28 for 2018, representing year-over-year growth of 35.1%. The stock has long-term expected earnings growth rate of 6.7%.
For Citigroup, the Zacks Consensus Estimate stands at $6.69 for 2018, reflecting a year-over-year jump of 25.5%. The stock has long-term expected earnings growth rate of 11.4%.
Therefore, this round is biased toward JPMorgan again.
Sales Growth Projections
For JPMorgan, the Zacks Consensus Estimate for sales is $109.7 billion for 2018, reflecting 10.1% rise from the prior year.
For Citigroup, the consensus estimate for sales stands at $73.7 billion, indicating growth of 3.2% year over year.
Therefore, JPMorgan has an edge here too.
JPMorgan seems overvalued when compared with the broader industry. Its current price-to-earnings (F1) and price-book ratios are above than the respective industry averages.
Citigroup, on the other hand, seems undervalued when compared with the broader industry. Its current price-to-earnings (F1) and price-book ratios are lower than the respective industry averages.
So, Citigroup holds the edge over JPMorgan here.
Our comparative analysis indicates that JPMorgan is better poised than Citigroup post third-quarter earnings when considering price performance, dividend yield, ROE,superior leverage ratio, and sales and earnings growth expectations. Citigroup wins on undervaluation only.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>