Wells Fargo & Company (WFC) and Citigroup, Inc. (C) are two of the biggest banks in the United States. WFC offers its services under three categories—personal, small business and commercial. Its operating segments include community banking, wholesale banking, and wealth and investment management. C provides a range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services and wealth management.
While most financial services companies took a hit from the pandemic-led economic slowdown and the Fed’s decision to keep benchmark interest rates near zero to support the economy, many of them are seeing a solid recovery this year with the revival of economic and capital market activities.
Increased investor interest in the financial sector is evidenced by the Financial Select Sector SPDR Fund’s (XLF) 12.1% returns over the past three months versus the SPDR S&P 500 ETF Trust’s (SPY) 7.4% gains over the period. Since the financial sector is expected to do well with increasing economic activity and heightened demand for loans, both WFC and C are expected to gain in the near- to mid-term.
While WFC has returned 53.7% over the past year, C has gained 58.6%. In terms of year-to-date performance, WFC is a clear winner with 41% returns versus C’s 13.2%. But which of these two stocks is a better pick now? Let’s find out.
On April 8, WFC, NextEra Energy, Inc. (NEE) and Duke Energy Corporation (DUK) announced a 20-year renewable energy purchase agreement under which WFC will consume 100% of solar energy produced by the Blackburn Solar Project, under DUK’s Green Source Advantage (GSA) program. WFC is a leader in financing large-scale wind, solar, and other renewable energy projects, and on February 25, 2021 it hit a milestone by its provision of $10 billion in tax equity financing for utility-scale renewable energy projects.
Also this month, C and Bank of America Corp. (BAC) agreed to work together to build a new industry-led independent data and execution platform for fixed-income markets. The venture is expected to develop a next generation trading, data and analytics platform for structured credit and underlying collateral markets. Also, C declared a quarterly dividend of $0.51 per share, payable on May 28.
Recent Financial Results
WFC’s $18.06 billion in total revenue for its fiscal year 2021 first quarter, ended March 31, 2021, represents a 2% year-over-year rise. Its non-interest income has increased 44.7% year-over-year to $9.27 billion. The company’s net income has increased 626.2% year-over-year to $4.74 billion. Also, its EPS came in at $1.05 in the quarter compared to $0.01 in the prior-year period.
For the fiscal 2021 first quarter ended March 31, 2021, C’s revenue declined 6.8% year-over-year to $19.32 billion. However, this represents 17.1% sequential revenue growth. Its operating income increased 213.1% year-over-year to $7.98 billion, while its net income increased 213.2% to $7.94 million. The company’s EPS came in at $3.62, up 241.5% year-over-year.
Expected Financial Performance
Analysts expect WFC’s revenue to increase 0.1% for the quarter ending September 30, 2021. The company’s EPS is expected to increase 234.8% for the quarter ending June 30, 2021 and 822% in its fiscal year 2021. Furthermore, its EPS is expected to grow at a rate of 113.1% per annum over the next five years.
In comparison, analysts expect C’s revenue to increase 0.3% for the quarter ending September 30, 2021. Its EPS is expected to increase 300% for the quarter ending June 30, 2021 and 85.2% in fiscal 2021. C’s EPS is expected to grow at a rate of 10.9% per annum over the next five years.
C’s trailing-12-month revenue is 1.02 times that of WFC. C is also more profitable with a net income margin of 25.4% versus WFC’s 11.6%.
C’s ROE and ROA of 8.4% and 0.7%, respectively, compare favorably with WFC’s 4.2% and 0.4%.
In terms of forward non-GAAP P/E, WFC is currently trading at 12.37x, 54.2% higher than C, which is currently trading at 8.02x. WFC is more expensive in terms of trailing-12-month P/S (2.76x versus 2.24x).
In terms of trailing-12-month price-to-book, WFC’s 1.06x is higher than C’s 0.80x.
So, C is the more affordable stock.
Both WFC and C have an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
WFC has a C grade for Value, which is consistent with its forward non-GAAP price/earnings ratio of 12.37x, which is higher than the industry average of 12.19x. However, C has a B grade for Value, which is in sync with its forward non-GAAP P/E ratio of 8.02x, which is 34.2% lower than the industry average 12.19x.
Moreover, of 11 stocks in the Money Center Bank industry, C is ranked #2 and WFC is ranked #4.
In addition to the POWR Ratings grade we’ve just highlighted, both WFC and C are rated for Momentum, Stability, Quality, and Sentiment. Click here to see the additional ratings for WFC. Also, get all of C’s ratings here.
While both WFC and C can be considered good long-term investments considering their global market dominance and the industry’s turnaround potential, this is perhaps not the right time to get involved in any of these two stocks because the interest rate environment is not yet favorable for their financials.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about six top-rated stocks in the Money Center Banks industry.
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C shares were trading at $70.20 per share on Wednesday morning, up $0.41 (+0.59%). Year-to-date, C has gained 14.82%, versus a 10.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Ananyo Guha Niyogi
Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More...
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