Top US Stocks: Bank of America, Wells Fargo and Citigroup

Bank of America Corp

Bank of America smashed expectations in the third quarter, boosted by the release of credit reserves and supported by growth in lending and strong equities trading, sending shares higher in premarket trade today.

Revenue was up 12% excluding interest expense to $22.8 billion and net income jumped 58% to $7.7 billion, with EPS rising to $0.85 from $0.51 the year before. That was better than the $21.6 billion of revenue and EPS of $0.70 forecast by Wall Street. It said it released $1.1 billion worth of reserves that had been set aside for potentially bad loans during the pandemic.

Net interest income, which represents the amount a bank makes on loans, was up 10% to $11.1 billion thanks to growth in deposits. Non-interest income was up 14% to $11.7 billion thanks to record asset management fees, strong growth from its investment banking division as well as a strong performance from its trading division, with its equities trading unit reporting 33% revenue growth.

 

Wells Fargo

Wells Fargo revealed earnings came in ahead of expectations in the third quarter, boosted by the release of credit reserves and the tentative return to loan growth after experiencing depressed demand for lending during the pandemic.

Revenue fell to $18.34 billion from $19.32 billion the year before, coming in below the $18.37 billion expected by analysts. However, EPS rose to $1.17 from $0.70 and came in well ahead of the $0.98 forecast by Wall Street. The bank, the fourth largest in the US, said it booked a $1.7 billion reduction in the allowance for credit losses as the economy continues to recover.

The bank said net interest income stabilised in the quarter and that period-end loans grew for the first time since the onset of the pandemic in the first quarter of 2020. The performance sent Wells Fargo shares higher in premarket trade today.

Importantly, Wells Fargo is still limited by the asset cap imposed by the Federal Reserve back in 2018 following a string of scandals and failures across the business, from overcharging consumers to having millions of fake accounts on its books. This has prevented the bank from growing its balance sheet over the $1.95 trillion it had back in 2017, which in turn has limited its ability to lend, invest and ultimately grow.

 

Citigroup

Citigroup reported results ahead of estimates in the third quarter, flattered by the release of reserves and driven by strong growth from its investment banking and corporate lending divisions.

Revenue was down 1% from last year at $17.2 billion, partly explained by the sale of its consumer business in Australia, but was up 3% when that impact was excluded. EPS jumped 58% from last year to $2.15. The results were significantly better than the $17.01 billion in revenue and $1.73 EPS forecast by Wall Street, with its bottom-line boosted by a $1.1 billion reduction in credit reserves for potentially bad loans.

Its investment banking unit reported the strongest revenue growth of 39% and the bank also reported a 17% jump in corporate lending. A 16% decline in income from fixed-income markets was countered by a 40% jump in equities. Meanwhile, revenue from its consumer banking division slumped 13%, driven by sharp falls in Asia and a milder decline in North America.

 

Morgan Stanley

Morgan Stanley shares rose in premarket trade as it blew past estimates in the third quarter after booking record advisory fees amid the boom in deal making in the markets and reporting strong double-digit revenue growth from its wealth management and investment management divisions.

Net revenue rose to $14.75 billion from $11.72 billion the year before and adjusted EPS increased to $1.98 from $1.66, beating the $1.68 profit forecast by Wall Street. The boom in M&A activity led to record advisory fees and helped deliver a 67% rise in revenue from its investment banking division, with growth in equities offsetting a decline in fixed-income. Wealth management revenue grew 28% and its investment management unit reported 38% growth.

‘We had standout performance of our integrated Investment Bank and record net new assets of $135 billion in Wealth Management. Year-to-date, our successful integrations of E*TRADE and Eaton Vance have supported growth of $400 billion in net new client assets across Wealth and Investment Management, bringing our total combined client assets to $6.2 trillion,’ said chairman and CEO James Gorman.

 

UnitedHealth

UnitedHealth shares rose in premarket trading after it beat expectations in the latest quarter thanks to strong topline growth across its Optum and UnitedHealthcare divisions, prompting it to raise forecasts for the rest of the year.

Revenue grew 11% in the third quarter to $72.3 billion, with UnitedHealthcare up 11% and Optum up 13.9%, and adjusted EPS grew to $4.52 from $3.51 the year before. Earnings came in ahead of the $4.41 forecast by analysts. Notably, its medical care ratio that measures the percentage of premiums paid for medical services deteriorated to 83% from 81.9% last year, which was worse than the 83.5% expected by Wall Street.

UnitedHealth said it is now expecting to deliver adjusted EPS of $18.65 to $18.90 per share over the full year from its previous target of $18.30 to $18.80.

 

TSMC

Taiwan Semiconductor Manufacturing Co beat expectations in the third quarter and reiterated that production capacity will remain tight into 2022 amid the global shortage in chips.

Revenue in US dollars was up 22.6% year-on-year to $14.88 billion, bang on analyst estimates, while earnings per ADR rose to $1.08 from $0.90 the year before and came in ahead of the $1.03 forecast by analysts. It said growth was delivered across all four of its key end markets – smartphones, high performance computers, IoT devices and the automotive sector – and said it expects its newer and more advanced 5nm chips to see increased demand going forward after accounting for 18% of sales in the quarter.

TSMC said it is expecting to deliver revenue of $15.4 billion to $15.7 billion in the fourth quarter. The company said it plans to build a new chip plant in Japan to use older chipmaking technology to help meet increased demand from automakers and tech companies, although this will do little to allay capacity concerns anytime soon considering it is unlikely to start producing toward the back end of 2024.

 

Walgreens Boots Alliance

Walgreens Boots Alliance said it beat its own targets during the fourth quarter and full year as US sales continued to grow and the UK benefited from the easing of lockdown restrictions.

The pharmacy giant said fourth quarter sales were up 12.8% year-on-year to $34.3 billion, with same store sales growing 8.8%, delivering a 28.1% lift in adjusted EPS to $1.17. That was ahead of the $33.30 billion in revenue and $1.02 of EPS expected by analysts. Walgreens said results exceeded expectations across the board and flagged it had delivered $2 billion worth of annual cost savings one year earlier than planned. The firm reported topline growth and improved profitability in the US and the UK as it reaped the benefit of operating medical hubs during the pandemic.

For the full year, the company reported 8.6% sales growth to $132.5 billion and a 14.6% rise in adjusted EPS to $4.91. The firm said it plans to provide guidance for the new financial year at its virtual investor conference later today.

 

Domino’s Pizza Group

Domino’s Pizza Group said appetite for its products remains high as it delivered another quarter of sales growth, although surprised markets by reporting a fall in same-store sales in its core US market.

Revenue was up 3.1% in the third quarter to $30.3 million. That was primarily driven by its international arm that delivered 8.8% same-store sales growth in the period, although investors will be surprised by the 1.9% decline in same-store sales in the US – partly down to the fact it came up against tough comparatives following the 17.5% rise booked a year ago. Overall global sales were up 10%. Diluted EPS jumped to $3.24 from $2.49.

‘We are pleased with our results this quarter, with robust store and sales increases internationally, while rolling over our highest quarter of 2020 in the US On a two-year basis, our US same store sales were up 15.6% over the 2019 baseline, with our international same store sales up 15.0% during that time, marking significant growth in our brand,’ said CEO Ritch Allison.

 

Boeing

Boeing is facing new problems with its 787 Dreamliner caused by titanium parts not being as strong as they should be, according to reports from the Wall Street Journal.

The report said the problems impact planes made over the last three years and comes as it continues to deal with structural defects with its 787s, which has forced the firm to cut production and delay deliveries.

 

Analyst Recommendations

Caterpillar was given an Outperform rating by Cowen & Co after the broker initiated coverage on the stock on the belief it could be about to benefit from its first ‘megacycle’ in 14 years.

UPS was upgraded to Buy from Hold by Stifel Financial and had its price target raised to $224 per share, implying up to 22% upside from the current share price, as it expects the postal firm to continue capitalising on the boom in ecommerce demand.

Avis Budget was downgraded to Underweight from Equal Weight by Morgan Stanley due to valuation concerns following a five-fold increase in value over the last year.

General Motors had its price target raised to $67 from $60 by Daiwa Capital Markets, stating its long-term strategy provides a clear road to further growth and a less-cyclical business model.

JPMorgan had its price target raised to $175 from $160 by RBC, with the broker stating its net interest income was better than expected yesterday while expenses dropped.

 

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