Should Investors Keep an Eye on JPMorgan and Citigroup (C) in 2024?

The U.S. banking sector, having weathered regional bank collapses and credit downgrades, projects stability despite looming macroeconomic uncertainties that put certain financial institutions at risk. Given this backdrop, waiting for better entry points in stocks Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM) could be prudent.

The Federal Reserve's decision to hike the benchmark interest rate marked an uptick for the banking sector, as high interest rates correspondingly raised net interest income for banks.

The industry grappled with risks like sluggish loan growth, steepening bond losses, default risks tethered to commercial real estate loans, increasing capital requirements, and broader macroeconomic degradation.

Moreover, the third quarter saw an unprecedented surge in credit card debt, registering close to a 5% increase compared to the second quarter. This rise has resulted in an increasing number of borrowers teetering on the edge of late payments.

However, amid easing inflation in November, there are strong market predictions that the Fed will begin to implement rate cuts next year. Such a move will likely alleviate concerns pertaining to deposit costs, loan growth, and credit quality within banking circles.

Banking stocks have recently rallied following the Fed's indication of potential interest rate cuts by 2024. Although higher interest rates generally favor banks, they can impede loan growth by making borrowing expensive and raising deposit costs. Anticipated lower rates are expected to foster demand for goods and services, opening the way for more loans by banks.

However, lending may become less profitable under lower rates due to decreased charging, while staff pay could rise slightly. Despite this, there are still opportunities for bank stocks to gain value.

With short-term rates likely to decline, the margin outlook seems optimistic as banks borrow short-term funds to make loans. Therefore, loan demand could also experience a boost.

Considering these trends, let's look at the fundamentals of the two Money Center Banks stocks.

Stock #2: Citigroup Inc. (C)

C provides various financial products and services to consumers, corporations, governments, and institutions in North America, Latin America, Asia, Europe, the Middle East, and Africa. It operates through three segments: Institutional Clients Group (ICG), Personal Banking and Wealth Management (PBWM), and Legacy Franchises.

C paid common dividends of $0.53 per share for the third quarter of 2023, and on October 19, 2023, it declared common dividends of $0.53 per share for the fourth quarter of 2023.

Its annualized dividend rate of $2.12 per share translates to a dividend yield of 4.12% on the current share price. Its four-year average yield is 3.84%. C’s dividend payments have grown marginally over the past three years and 6.2% over the past five years.

C’s forward non-GAAP P/E of 8.61x is 20.2% lower than the 10.79x industry average. However, its forward Price/Book of 0.52x is 57.6% lower than the 1.22x industry average.

During the third quarter of 2023, C returned $1.5 billion of capital to common shareholders in the form of $1 billion in dividends and $0.5 billion in share repurchases (approximately 12 million common shares).

C’s total revenues for the fiscal third quarter that ended September 30, 2023, increased 8.8% year-over-year to $20.14 billion. Its net income surged 1.9% year-over-year to $3.55 billion. Moreover, its earnings per share stood at $1.33. On the other hand, its net interest income rose 10.1% year-over-year to $13.83 billion.

Analysts expect C’s revenue for the fiscal fourth quarter ending December 2023 to increase 5.8% year-over-year to $19.05 million. Its EPS for the same quarter is expected to decline 14.6% year-over-year to $0.99. It surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.

The stock has gained 15.5% over the past year to close the last trading session at $51.52. Over the past three months, it gained 25.1%.

C’s fundamentals are reflected in its POWR Ratings. It has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has a B grade for Value. Within the Money Center Banks industry, it is ranked #4 out of 9 stocks.

For C’s additional ratings (Growth, Momentum, Stability, Sentiment, and Quality), click here.

Stock #1: JPMorgan Chase & Co. (JPM)

JPM operates as a financial services company worldwide. It operates through four segments: Consumer & Community Banking (CCB); Corporate & Investment Bank (CIB); Commercial Banking (CB); and Asset & Wealth Management (AWM).

JPM announced that its Board of Directors declared a quarterly common stock dividend, which increased to $1.05 per share from $1.00 per share, paid on October 31, 2023. JPM has grown its dividend for nine consecutive years.

Its annualized dividend rate of $4.20 per share translates to a dividend yield of 2.48% on the current share price. Its four-year average yield is 2.91%. JPM’s dividend payments have grown 4% and 10.3% over the past three and five years, respectively.

JPM’s forward non-GAAP P/E of 10.18x is 5.7% lower than the 10.79x industry average. However, its forward Price/Book of 1.66x is 35.4% higher than the 1.22x industry average.

JPM’s total net revenue for the fiscal third quarter that ended September 30, 2023, increased 21.9% year-over-year to $39.87 billion. Its net income rose 35.1% year-over-year to $13.15 billion. In addition, its earnings per share stood at $4.33, representing an increase of 38.8% year-over-year.

Its return on common equity (ROE) was 18%, compared to 15% in the year-ago period. Also, its CET1 ratio was 14.3%, compared to 12.5% in the prior-year quarter.

Analysts expect JPM’s revenue for the fiscal fourth quarter ending December 2023, to increase 15% year-over-year to $39.72 billion, while its EPS is expected to come at $3.50, representing a 1.9% year-over-year decline. It surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.

Over the past year, the stock has gained 28.6% to close the last trading session at $170.30. It has gained 32.1% over the past nine months.

JPM’s POWR Ratings reflect its prospects. The stock has an overall C rating, equating to Neutral in our proprietary rating system.

It has a C grade for Growth, Value, Momentum, Stability, Sentiment, and Quality. It is ranked #2 within the same industry.

Click here to see the JPM’s additional ratings.

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JPM shares were unchanged in premarket trading Friday. Year-to-date, JPM has gained 30.78%, versus a 26.54% rise in the benchmark S&P 500 index during the same period.

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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