Even though sentiments have improved since the collapse of the regional banks, underlying apprehensions about the U.S. banking system’s stability persist among investors and depositors. Given this backdrop, looking beyond borders and adding fundamentally robust foreign bank stocks Banco do Brasil (BDORY), KB Financial Group (KB), and Banco Macro (BMA) to your portfolio could be wise. Read on….
Earlier this year, the U.S. banking system was significantly disrupted due to the collapse of three distinguishable regional banks, illustrating a critical state of crisis. Despite the relentless efforts by financial regulatory bodies to instill stability in the U.S. banking system, the prevailing atmosphere still reeks of apprehension among investors and depositors.
Given this backdrop, I think it could be wise to look beyond borders and benefit from relatively healthier banking systems by investing in fundamentally sound foreign bank stocks such as Banco do Brasil S.A. (BDORY), KB Financial Group Inc. (KB), Banco Macro S.A. (BMA).
Before delving deeper into the fundamentals of these stocks, understanding the existing conditions of the U.S. banking landscape is crucial.
Profound market instabilities have been triggered following the collapse of regional banks, Silicon Valley Bank and Signature Bank, in March. Adding fuel to the fire, First Republic Bank then experienced a collapse in May.
Apprehension over the security of deposits accelerated deposit withdrawals, instigating a bank run. This has subsequently led to significant disruptions within the banking industry.
The Federal Deposit Insurance Corporation (FDIC)’s quarterly report reveals that during the first quarter of 2023, U.S. banks witnessed an erosion of deposits amounting to $472 billion, the largest it had recorded since it began collecting such data in 1984. Also, depositors are transitioning their investments, favoring larger banks and money market funds offering higher yields.
Moreover, banks have confronted regulatory obstacles since the collapse, including stringent risk management parameters, enhanced oversight, and heightened transparency demands. Tighter credit standards may elevate their operational expenditures, diminish lending volumes, and strain their profit margins. Credit crunch would also pressure economic activities, bringing the country closer to recession.
Furthermore, the U.S. banking sector is set for significant modifications in the wake of newly imposed stringent capital regulations focusing on sizable lending institutions. This strategic shift, masterminded by the Federal Reserve, is intended to bolster the financial infrastructure compromised following the regional banking failures. As a result of these changes, a surge in capital requirements is feared to escalate borrowing costs and reduce loan availability for consumers and businesses.
Given this backdrop, quality foreign bank stocks BDORY, KB, and BMA could be wise portfolio additions now.
Banco do Brasil S.A. (BDORY)
Headquartered in Brasilia, Brazil, BDORY provides banking products and services for individuals, companies, and public sectors in Brazil and internationally. The company operates through Banking, Investments, Fund Management, Insurance, Electronic Payments, and Other segments.
BDORY pays a $0.46 per share dividend annually, which translates to a 4.56% yield on the current share price. Its four-year average dividend yield is 7.71%. The company’s dividend payouts have grown at a CAGR of 159.7% over the past three years.
BDORY’s forward non-GAAP P/E of 4.03x is 55.6% lower than the 9.07x industry average. Its forward non-GAAP PEG and Price/Sales multiples of 0.56 and 1.36 are 53.1% and 40.2% lower than the industry averages of 1.19 and 2.27, respectively.
For the first quarter that ended March 31, 2023, BDORY’s operating income increased 33.2% year-over-year to R$10.27 billion ($2.14 billion). Its net income increased 23.2% year-over-year to R$8.12 billion ($1.69 billion). Its earnings per share came in at R$2.84, representing an increase of 22.9% year-over-year.
Moreover, for the same quarter, the company’s cash provided by investing activities stood at R$21.22 billion ($4.42 billion), up significantly from the year-ago quarter.
For the fiscal third quarter ending September 2023, BDORY’s EPS is expected to be $0.63. Its revenue and EPS for the fiscal year ending December 2023 are expected to increase 47.2% and 15.6% year-over-year to $20.90 billion and $2.49, respectively. Moreover, it surpassed consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 15% over the past three months to close the last trading session at $10.05. Over the past six months, the stock has gained 45.2%.
BDORY’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Value, Momentum, Stability, and Sentiment. Within the B-rated 89-stock Foreign Banks industry, it is ranked #6.
To see the other ratings of BDORY for Growth and Quality, click here.
KB Financial Group Inc. (KB)
Headquartered in Seoul, South Korea, KB provides a range of banking and related financial services to consumers and corporations worldwide. The company operates through seven segments: Retail Banking, Corporate Banking, Other Banking, Credit Card, Securities, Life Insurance, and Non-Life Insurance.
KB pays a $1.85 per share dividend annually, which translates to a 4.82% yield on the current share price. Its four-year average dividend yield is 5.40%. The company’s dividend payouts have grown at a CAGR of 1.1% over the past three years and 0.6% over the past five years.
KB’s forward non-GAAP PEG of 0.44x is 63.1% lower than the 1.19x industry average. Its 1.14x forward Price/Sales is 49.7% lower than the 2.27x industry average. Likewise, its trailing-12-month non-GAAP P/E multiple of 4.14 is 54.3% lower than the 9.07 industry average.
KB’s net interest income for the first quarter ended March 31, 2023, increased 5.1% year-over-year to KRW2.78 trillion ($2.19 billion). Its net operating profit increased 11.2% year-over-year to KRW2.13 trillion ($1.67 billion). The company’s profit increased 1.9% year-over-year KRW1.50 trillion ($1.18 billion), while its earnings per share increased 1.7% from the prior-year quarter to KRW3669.
Analysts expect KB’s revenue and EPS for the fiscal third quarter ending September 2023 to increase 6.6% and 20.3% year-over-year to $3.12 billion and $2.61, respectively.
The stock gained 1.5% intraday to close the last trading session at $38.27. Over the past year, the stock has gained 12.7%.
KB’s POWR Ratings reflect a positive outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
The company has an A grade for Stability and B for Value and Momentum. It is ranked #3 within the same industry.
Click here for KB’s additional POWR Ratings for Growth, Sentiment, and Quality.
Banco Macro S.A. (BMA)
Headquartered in Buenos Aires, Argentina, BMA provides various banking products and services to retail and corporate customers in Argentina. It offers multiple retail and corporate banking products and services, transaction services, information services, and internet and mobile banking services.
BMA pays a $0.93 per share dividend annually, translating to a 3.50% yield on the current share price. Its four-year average dividend yield is 3.43%.
BMA’s forward Price/Book of 0.60x is 38.4% lower than the 0.97x industry average. Likewise, its forward non-GAAP P/E multiple of 3.44 is 62% lower than the 9.07 industry average.
For the fiscal first quarter that ended March 31, 2023, BMA’s net interest income + net fee income rose 12.4% year-over-year to ARS119.69 billion ($451.57 million). Its net operating income increased 28% over the prior-year quarter to ARS167.80 billion ($633.06 million). Its net income from continuing operations came in at ARS9.78 billion ($36.89 million).
Analysts expect BMA’s EPS for the fiscal third quarter ending September 2023 to increase 81.8% year-over-year to $1.71. Its EPS for the fiscal year ending December 2023 is expected to increase 90.5% year-over-year to $7.24, while its revenue is expected to come in at $1.35 billion. The company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 140.4% to close the last trading session at $24.93. The stock has gained 20.1% over the past three months.
It’s no surprise BMA has an overall rating of B, which translates to Buy in our POWR Ratings system.
It has an A grade for Value and B for Growth, Momentum, and Quality. It is ranked #4 within the same industry.
Beyond what we have highlighted above, we have also given other ratings of BMA for Stability and Sentiment. Click here to see.
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BDORY shares were trading at $9.79 per share on Monday morning, down $0.26 (-2.59%). Year-to-date, BDORY has gained 53.92%, versus a 18.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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