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UBS Group Rides on Cost Control Efforts: Should You Hold?

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UBS Group AG’s UBS efforts to free up resources through restructuring initiatives and investing in profitable areas might help enhance prospects. Also, focus on building capital levels and undertaking cost-saving initiatives seems impressive. However, negative interest rates and strict regulations in the domestic economy continue to weigh on it.

The Zacks Consensus Estimate for current-year earnings of $1.25 has been stable over the past 30 days. The stock currently carries a Zacks Rank #3 (Hold).

Shares of UBS Group have gained 1.5% over the past year compared with 7.1% growth of the industry.

The company engages in efficiency programs to free up resources, enabling it to make investments to support growth and service clients better. The company expects adjusted Group cost/income ratio to be above 72% by 2021.

Further, it has strengthened cost management and transparency by focusing on improving cost efficiency, which is positive for the long-term success of the company. Through these efforts, UBS Group achieved net cost reductions of CHF 25 million by 2018-end. It is on track to achieve the cumulative $600 million gross cost saving through 2021.

Nevertheless, UBS Group’s net interest income remains under pressure owing to the negative interest rate environment in the domestic economy. Also, appreciation of the Swiss franc against other currencies is likely to hurt earnings, as a significant part of the company’s operating income is denominated in non-Swiss franc currencies.

Further, the company’s capital deployment activities seem unsustainable as its debt-to-equity ratio compares unfavorably with that of the industry.

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