Higher interest rates, decent loan and deposit growth, and improving domestic economy are driving U.S. bank stocks. Though trade conflict with China remains a major concern, banks are taking several initiatives, including branch expansion and technology upgrade to meet changing client needs. These efforts will support their financials in the long run. Also, improving asset quality and robust capital position will keep aiding profitability.
Given the promising developments across the banking sector, we are today discussing two of the biggest banks in the United States — JPMorgan (JPM - Free Report) and Bank of America (BAC - Free Report) — with market capitalization of $383.5 billion and $293.9 billion, respectively.
As both the stocks carry a Zacks Rank #3 (Hold), we are using certain other parameters to give investors a better insight. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Both the companies have outperformed the industry (up 12.8%) so far this year. While shares of JPMorgan have gained 13.5%, BofA has rallied 15.6%. So, BofA has performed better than JPMorgan.
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.
Notably, 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 2.89%.
Dividend Yield: JPM
Following the Fed’s approval for its 2018 capital plan, BofA announced a 25% dividend hike and $20.6 billion share repurchase authorization. Further, in February, the bank announced an additional $2.5 billion share buyback authorization to be completed by Jun 30, 2019. Also, it has a dividend yield of 2.11%.
Dividend Yield: BAC
Therefore, JPMorgan has an edge over BofA here (in terms of dividend yield).
Both JPMorgan and BofA have a higher debt-to-equity ratio compared with the industry average of 0.91. But BofA, with a leverage ratio of 0.96, has an edge over JPMorgan with the same of 1.25.
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 BofA is 14.23% and 11.79%, respectively. Further, with 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
Analysts seem to be bullish on JPMorgan’s financial performance. Thus, the Zacks Consensus Estimate for 2019 earnings has moved 3.4% upward over the past 60 days. Further, the consensus estimate for earnings is pegged at $10.03 for 2019, indicating growth of 11.4% from the year-ago reported figure. The stock has a long-term expected earnings growth rate of 7%.
On the other hand, BofA’s consensus estimate for 2019 earnings has marginally declined over the past 60 days. The Zacks Consensus Estimate stands at $2.86 for current year, implying an increase of 9.6%. The stock has a long-term expected earnings growth rate of 8%.
Therefore, this round is biased toward JPMorgan too.
Sales Growth Projections
For JPMorgan, the Zacks Consensus Estimate for sales is $115.3 billion for 2019, suggesting5.7% rise from the prior-year reported figure.
For BofA, the consensus estimate for sales stands at $92.6 billion, indicating growth of 1.5%.
Therefore, JPMorgan has an edge here too.
JPMorgan seems overvalued when compared with the broader industry. Its current price-to-book and price-to-earnings (F1) ratios are above than the respective industry average.
BofA, on the other hand, seems undervalued when compared with the broader industry. Its current price-to-book and price-to-earnings (F1) ratios are lower than the respective industry average.
Also, BofA has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
Hence, BofA holds the edge over JPMorgan here.
Our comparative analysis indicates that JPMorgan is poised better than BofA when considering dividend yield, ROE, favorable earnings estimate revisions and earnings and sales growth expectations. BofA wins on price performance, undervaluation and superior leverage ratio.
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