Investors remain concerned about the U.S. banking system following the consecutive failures of regional banks Silicon Valley Bank, Signature Bank, and First Republic Bank. Amid the pessimism surrounding the U.S. banking sector, one could look beyond the geographical boundaries to capitalize on the higher interest rate environment.
To that end, it could be wise to consider fundamentally strong foreign bank stocks Intesa Sanpaolo S.p.A. (ISNPY) and Woori Financial Group Inc. (WF).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the U.S. banking industry and why it could be wise to buy foreign bank names.
Aggressive interest rate hikes by the central bank since last year put pressure on the banking system. It was one of the reasons for the collapse of the three regional banks. Depositors’ concerns over the safety of their deposits led them to withdraw their deposits quickly, leading to a bank run.
Despite assurances by the federal regulators and executives from top financial institutions that the banking system is safe, there is still tumult amongst investors and depositors, especially after regional bank PacWest Bancorp (PACW) confirmed it was exploring strategic options, including a sale. The bank had previously reported that its deposits had declined by 9.5% for the week ended May 5, 2023.
Moreover, U.S. banks will likely feel the pressure of tighter lending standards. This could pose a threat to the banks as it puts strain on their profit margins.
Citing a rapidly deteriorating operating environment, Moody’s has cut the outlook on the U.S. banking system to Negative from Stable. Considering these factors, foreign banks trading at a discounted valuation and benefitting from higher interest rates could be solid investments.
Given these factors, investors could consider buying the featured foreign banking names.
Let’s take a closer look at their fundamentals.
Intesa Sanpaolo S.p.A. (ISNPY)
Headquartered in Turin, Italy, ISNPY provides various financial products and services. It operates through six segments Banca dei Territori, IMI Corporate & Investment Banking, International Subsidiary Banks, Asset Management, Private Banking, and Insurance.
In terms of forward non-GAAP P/E, ISNPY’s 6.47x is 23.3% lower than the 8.44x industry average. Likewise, its 1.73x forward Price/Sales is 12.6% lower than the 1.98x industry average.
For the fiscal first quarter that ended March 31, 2023, ISNPY’s operating income increased 11.9% year-over-year to €6.06 billion ($6.57 billion). The company’s operating margin increased 22% year-over-year to €3.52 billion ($3.82 billion).
Its gross income increased 58% year-over-year to €3.36 billion ($3.64 billion). Also, its net income increased 87.5% year-over-year to €1.96 billion ($2.13 billion).
Analysts expect ISNPY’s EPS for the quarter ending December 31, 2023, to increase 13% year-over-year to $0.51. Its revenue for the quarter ending June 30, 2023, is expected to increase 24.5% year-over-year to $6.80 billion. Over the past nine months, the stock has gained 40.5% to close the last trading session at $15.72.
ISNPY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #2 out of 88 stocks in the Foreign Banks industry. It has a B grade for Growth and Sentiment. We have given ISNPY grades for Value, Momentum, Stability, and Quality. Get all ISNPY ratings here.
Woori Financial Group Inc. (WF)
Headquartered in Seoul, South Korea, WF operates as a commercial bank that provides a range of financial services to individual, business, and institutional customers. It operates through Banking, Credit Card, Capital, Investment Banking, and Others segments.
In terms of forward non-GAAP P/E, WF’s 2.88x is 65.8% lower than the 8.44x industry average. Likewise, its 0.84x forward Price/Sales is 57.8% lower than the 1.98x industry average.
WF’s net operating revenue for the first quarter ended March 31, 2023, increased 7.6% year-over-year to ₩2.55 trillion ($1.91 billion). The company’s net income rose 8.2% over the prior-year quarter to ₩944 billion ($705.75 million). Its operating income increased 1.9% year-over-year to ₩1.25 trillion ($936 million).
WF’s EPS and revenue for fiscal 2024 are expected to increase 3.7% and 2.7% year-over-year to $9.61 and $7.86 billion, respectively. Over the past six months, the stock has gained marginally to close the last trading session at $26.73.
WF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It is ranked #10 out of 88 stocks in the same industry. It has an A grade for Value. Click here to see the other ratings of WF for Growth, Momentum, Stability, Sentiment, and Quality.
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ISNPY shares were trading at $15.41 per share on Thursday afternoon, down $0.32 (-2.00%). Year-to-date, ISNPY has gained 15.34%, versus a 9.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...
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