Despite reassurances from federal regulators, depositors and investors remain cautious about the risks in the US banking sector. Amidst this uncertainty, it could be worth investing in fundamentally strong foreign bank stocks to take advantage of rising global interest rates. To that end, Banco Bilbao Vizcaya Argentaria (BBVA), Banco do Brasil (BDORY) and Woori Financial Group (WF) could be worthwhile investments right now. Continue reading….
The US banking industry has been in turmoil lately after Silicon Valley Bank and Signature Bank collapsed in March and the First Republic Bank, the second largest bank failure in US history, recently collapsed.
Despite regulators reassuring depositors and investors that the banking system is safe, concerns about the stability of the US banking system remain. Therefore, it might be wise to look beyond the borders and invest in fundamentally strong foreign bank stocks Banco Bilbao Vizcaya Argentaria, SA (BBVA), Banco do Brasil S.A. (BDORY) and Woori Financial Group Inc. (WF).
Before we delve deeper into the fundamentals of these stocks, let’s discuss what’s happening in the US banking industry and why it might make sense to buy foreign bank stocks.
The US banking system has been under pressure from the Fed’s rapid rate hike over the past year. The collapses of First Republic Bank and Silicon Valley Bank were the largest bank failures since 2008. The bank run caused the bank failures and led to a drain of deposits from smaller banks to the too-big-to-fail banks.
Bank deposits have also found their way into money market funds, which offer significantly higher interest rates than savings accounts. In the week ended May 10, 2023, the total assets of money market funds increased by $18.33 billion to $5.33 trillion. Investors remained concerned about the prospects for the banking system after regional bank PacWest Bancorp (PACW) confirmed that strategic options are being reviewed, including sale.
The bank recently reported that it is Deposits fell by 9.5% for the week ending May 5, 2023. In addition, US banks are also most likely to face several regulatory challenges such as increased capital requirements, increased oversight, stricter risk management, increased disclosures, etc.
Tighter lending standards are also expected to increase their operating expenses and reduce their lending volume, putting further pressure on their profitability. Moody’s lowered the outlook for the US banking system to negative from stable.citing a rapidly deteriorating operating environment.
Given these factors, investors might consider buying the featured foreign bank names as they are likely to benefit from the higher interest rate environment and the prospects for stability and growth of the economies in which they operate.
Let’s discuss their basics in detail.
Bank Bilbao Vizcaya Silver, SA (BBVA)
BBVA is headquartered in Bilbao, Spain and offers retail, wholesale and wealth management services. It offers checking accounts; and sight, savings, overnight, time, term and subordinated deposits. The company also offers credit products and securities transactions; leasing, factoring, brokerage and asset management services; and manages pension and investment funds.
In terms of non-GAAP forward P/E, BBVA is 4.91x, 40% below the industry average of 8.19x. It’s 1.37x forward price/sales is 29.5% below the 1.94x industry average. Likewise, its 0.80x trailing 12-month price/book is 15.1% below the 0.94x industry average.
BBVA’s net interest income increased 43.1% year-on-year to 5.64 billion euros ($6.13 billion) for the first quarter ended March 31, 2023. Gross interest income increased 29% year over year to 6.96 billion euros ($7.56 billion). The company’s net operating income increased 34.3% year over year to 2.96 billion euros ($3.22 billion).
Also, attributable net income increased 39.4% year over year to 1.85 billion euros ($2.01 billion). In addition, earnings per share from continuing operations were €0.29, up 52.6% year-on-year.
Analysts expect BBVA’s revenue to increase 22.8% year over year to $7.64 billion for the quarter ended June 30, 2023. Over the past nine months, the stock is up 40.8% to close the last trading session at $6.90.
BBVA’s POWR ratings reflect this positive attitude. RE has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR ratings evaluate stocks based on 118 different factors, each with its own weighting.
It occupies first place among 88 stocks in the ranking foreign banks Industry. It has a B grade for growth, stability and mood. Click here to see BBVA’s other ratings for Value, Momentum and Quality.
Banco do Brasil S.A. (BDORY)
Headquartered in Brasila, Brazil, BDORY provides banking products and services to individuals, businesses and the public sector in Brazil and internationally. The Company operates through the segments of Banking, Investing, Fund Management, Insurance, Electronic Payments and Other.
In terms of non-GAAP forward P/E, BDORY’s 3.75 times is 54.3% below the industry average of 8.19. Its 0.37x forward non-GAAP PEG is 63.4% below the 1.02x industry average. Likewise, its projected price-to-sales ratio of 1.29x is 33.5% below the industry average of 1.94x.
For the first quarter ended March 31, 2023, BDORY’s operating income increased by 33.2% year-on-year to R$10.27 million ($2.09 million). Net income increased 23.2% year-on-year to R$8.12 million ($1.65 million). Earnings per share were R$2.84, up 22.9% year-on-year.
For the quarter ended June 30, 2023, BDORY’s earnings per share are expected to increase 3.4% year-on-year to $0.60. Fiscal 2023 revenue is expected to grow 41.9% year over year to $20.15 billion. The stock is up 38.9% year-to-date to close the last trading session at $9.09.
BDORY’s POWR ratings reflect a solid outlook. It has an overall rating of B, which means buy in our proprietary rating system.
It ranks 4th within the same industry. It has a B grade for Value, Stability, and Vibe. To see BDORY’s other reviews for growth, momentum and quality, Click here.
Woori Financial Group Inc. (WF)
WF is a commercial bank offering a range of financial services to retail, commercial and institutional customers in Korea. The Company operates through Banking, Credit Card, Equity, Investment Banking and Other segments. The company offers savings, demand and installment deposits, term deposits and certificates of deposit. The head office is located in Seoul, South Korea.
In terms of forward non-GAAP P/E, 2.90x WF is 64.7% below the industry average of 8.19. Likewise, its projected price-to-sales ratio of 0.83x is 57% below the industry average of 1.94x.
WF net operating revenue increased 7.6% year-on-year to ₩2.55 trillion ($1.91 billion) for the first quarter ended March 31, 2023. The company’s net income increased 8.2% to ₩944 billion ($705.52 million) compared to the same quarter last year. Operating income increased 1.9% year over year to ₩1.25 trillion ($936 million).
Analysts expect WF’s fiscal 2024 earnings per share and revenue to increase 3.7% and 2.2% year over year, to $9.61 and $7.89 billion, respectively. Over the past month, the stock is up 0.5% to close the last trading session at $26.85.
WF’s strong fundamentals are reflected in its POWR ratings. It has an overall rating of B, which means buy in our proprietary rating system.
It ranks 10th in the foreign banking industry. It has an A grade for value. Click here to see WF’s other ratings for growth, momentum, stability, sentiment and quality.
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BBVA shares fell $0.02 (-0.29%) in premarket trade on Tuesday. Year-to-date, BBVA is up 19.45%, while the benchmark S&P 500 index is up 8.41% over the same period.
About the author: Dipanjan Banchur
Dipanjan has been interested in the stock market since he was in elementary school. This led to him earning a master’s degree in finance and accounting. As an investment analyst and financial journalist, Dipanjan currently has a keen interest in reading and analyzing emerging trends in the financial markets.
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