The U.S. banking industry has been in turmoil lately after the failures of the Silicon Valley Bank and Signature Bank in March and the most recent collapse of the First Republic Bank, the second-largest bank failure in U.S. history.
Despite regulators assuring depositors and investors that the banking system is safe, concerns remain about the stability of the U.S. banking system. Therefore, it could be wise to look beyond borders and invest in fundamentally strong foreign bank stocks Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), Banco do Brasil S.A. (BDORY), 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 judicious to buy foreign bank stocks.
The U.S. banking system has been under pressure due to the Fed’s rapid interest rate increase over the past year. The collapses of the First Republic Bank and the Silicon Valley Bank were the biggest bank failures since 2008. The bank run caused the bank failures, leading to an outflow of deposits from smaller banks to the ‘too-big-to-fail’ banks.
Bank deposits have also found their way to money market funds, which offer much higher interest rates than savings accounts. For the week ended May 10, 2023, total money market fund assets increased by $18.33 billion to $5.33 trillion. Investors remained jittery over the prospects of the banking system after regional bank PacWest Bancorp (PACW) confirmed it was exploring strategic options, including a sale.
The bank recently reported that its deposits declined by 9.5% for the week ended May 5, 2023. Furthermore, U.S. banks are also highly likely to face several regulatory challenges like increased capital requirements, heightened supervision, stricter risk management, increased disclosure, etc.
Tighter credit standards are also expected to lead to an increase in their operational costs and reduce their lending volumes, piling further pressure on their profitability. Moody’s cut the outlook on the U.S. banking system to Negative from Stable, citing a rapidly deteriorating operating environment.
Given these factors, investors could consider buying the featured foreign bank names as they will likely benefit from the higher interest rate environment and the stability and growth prospects of the economies in which they operate.
Let’s discuss their fundamentals in detail.
Banco Bilbao Vizcaya Argentaria, S.A. (BBVA)
Headquartered in Bilbao, Spain, BBVA provides retail banking, wholesale banking, and asset management services. It offers current accounts; and demand, savings, overnight, time, term, and subordinated deposits. The company also provides loan products, deals in securities; leasing, factoring, brokerage, and asset management services; and manages pension and investment funds.
In terms of forward non-GAAP P/E, BBVA’s 4.91x is 40% lower than the 8.19x industry average. Its 1.37x forward Price/Sales is 29.5% lower than the 1.94x industry average. Likewise, its 0.80x trailing-12-month Price/Book is 15.1% lower than the 0.94x industry average.
BBVA’s net interest income increased 43.1% year-over-year to €5.64 billion ($6.13 billion) for the first quarter ended March 31, 2023. Its gross income rose 29% year-over-year to €6.96 billion ($7.56 billion). The company’s net operating income increased 34.3% year-over-year to €2.96 billion ($3.22 billion).
Also, its net attributable profit increased 39.4% year-over-year to €1.85 billion ($2.01 billion). In addition, its EPS from continuing operations came in at €0.29, representing an increase of 52.6% year-over-year.
Analysts expect BBVA’s revenue for the quarter ending June 30, 2023, to increase 22.8% year-over-year to $7.64 billion. Over the past nine months, the stock has gained 40.8% to close the last trading session at $6.90.
BBVA’s POWR Ratings reflect this positive outlook. RE has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked first out of 88 stocks in the Foreign Banks industry. It has a B grade for Growth, Stability, and Sentiment. Click here to see the other ratings of BBVA for Value, Momentum, and Quality.
Banco do Brasil S.A. (BDORY)
Headquartered in Brasila, 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.
In terms of forward non-GAAP P/E, BDORY’s 3.75x is 54.3% lower than the 8.19x industry average. Its 0.37x forward non-GAAP PEG is 63.4% lower than the 1.02x industry average. Likewise, its 1.29x forward Price/Sales is 33.5% lower than the 1.94x industry average.
For the first quarter ended March 31, 2023, BDORY’s operating income increased 33.2% year-over-year to R$10.27 million ($2.09 million). Its net income increased 23.2% year-over-year to R$8.12 million ($1.65 million). Its EPS came in at R$2.84, representing an increase of 22.9% year-over-year.
For the quarter ending June 30, 2023, BDORY’s EPS is expected to increase 3.4% year-over-year to $0.60. Its revenue for fiscal 2023 is expected to increase 41.9% year-over-year to $20.15 billion. The stock has gained 38.9% year-to-date to close the last trading session at $9.09.
BDORY’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
Within the same industry, it is ranked #4. It has a B grade for Value, Stability, and Sentiment. To see the other ratings of BDORY for Growth, Momentum, and Quality, click here.
Woori Financial Group Inc. (WF)
WF operates as a commercial bank that provides a range of financial services to individual, business, and institutional customers in Korea. It operates in Banking, Credit Card, Capital, Investment Banking, and Others segments. The company offers savings, demand, and installment deposits, time deposits, and certificates of deposit. It is based in Seoul, South Korea.
In terms of forward non-GAAP P/E, WF’s 2.90x is 64.7% lower than the 8.19x industry average. Likewise, its 0.83x forward Price/Sales is 57% lower than the 1.94x 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 ($705.52 million). Its operating income increased 1.9% year-over-year to ₩1.25 trillion ($936 million).
Analysts expect WF’s EPS and revenue for fiscal 2024 to increase 3.7% and 2.2% year-over-year to $9.61 and $7.89 billion, respectively. Over the past month, the stock has gained 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 translates to Buy in our proprietary rating system.
It is ranked #10 in the Foreign Banks 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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BBVA shares fell $0.02 (-0.29%) in premarket trading Tuesday. Year-to-date, BBVA has gained 19.45%, versus a 8.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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