The earnings season is drawing to a close, with results from nearly 388 S&P 500 members already out. In the S&P 500 universe, the Zacks Finance sector’s total earnings are projected to grow 3% year over year in the first quarter.
Today, we will discuss two big banks in the United States — JPMorgan (JPM - Free Report) and Citigroup (C - Free Report) — with market capitalization of $398.5 billion and $181.6 billion, respectively.
Notably, the results for both JPMorgan and Citigroup improved on the back of rise in lending activities. Further, controlled expenses, decent investment banking performance and higher rates supported the results.
Going forward, both JPMorgan and Citigroup expect revenue growth to keep supporting profitability. Also, both are influenced by almost similar economic backdrop as these firms 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 stand against each other in terms of certain key metrics.
So far this year, shares of JPMorgan have gained 17.9%, while Citigroup has rallied 35.3%. In addition, during the same time period, the industry has recorded growth of 18.8%. So, Citigroup performed better than JPMorgan.
Year-to-Date Price Performance
Both 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 2.78%.
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 2.56%.
Dividend Yield: JPM & C
As you see in the above chart, JPMorgan has an edge over Citigroup here as its dividend yield is better than Citigroup’s, though below the industry average of 2.77%.
Citigroup has debt-to-equity ratio of 1.36 as compared with the industry average of 0.91. But JPMorgan, with ratio of 1.25, has an edge over Citigroup.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12 months for JPMorgan and Citigroup is 14.23% and 10.05%, respectively. Further, with the industry’s average of 12.69%, JPMorgan is more efficient in using shareholders’ funds.
Hence, JPMorgan holds an edge here.
Earnings Estimate Revisions & Growth Projections
Both JPMorgan and Citigroup have witnessed the Zacks Consensus Estimate for 2019 earnings being revised upward. Over the past 30 days, earnings estimates moved 3.3% and 2.4% north for JPMorgan and Citigroup, respectively.
For JPMorgan, the consensus estimate for earnings per share is pegged at $10 for 2019, representing year-over-year growth of 11.1%. The stock has a long-term expected earnings growth rate of 7%.
For Citigroup, the Zacks Consensus Estimate is pinned at $7.60 for 2019, reflecting a year-over-year jump of 14.3%. The stock has a long-term projected earnings growth rate of 12.15%.
Therefore, Citigroup reflects better earnings growth prospects.
Sales Growth Projections
For JPMorgan, the Zacks Consensus Estimate for the current-year sales is $115.3 billion, suggesting 5.7% improvement from the prior year.
For Citigroup, the consensus estimate for the ongoing year’s sales is pegged at $74.1 billion, indicating growth of 1.7% year over year.
Therefore, JPMorgan has an edge here.
JPMorgan seems overvalued when compared with the broader industry. Its current price-to-earnings (F1) and price-book ratios are higher than the respective industry averages, on one hand.
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 the first-quarter earnings results, when considering dividend yield, ROE, superior leverage ratio, and sales growth expectations. Citigroup wins on undervaluation, price performance and earnings growth expectations.
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