On Mar 26, we issued an updated research report on
UBS Group AG
UBS
. The company continues to gain from organic and inorganic growth strategies, along with prudent cost management. However, low interest rates, unsustainable capital deployment and higher regulatory costs might hurt its profitability in the near term.
The company has recorded continued organic growth in the last few years, backed by its efficiency programs freeing up resources for investments and strengthening existing relationships by improving customers’ experience through improved quality and speed to market.
Supported by a solid liquidity position, UBS Group has been able to expand via a couple of partnerships and acquisitions in the past few years, which have opened new markets for the bank and fortified its presence in the existing ones. In September 2020, the company entered into an investment banking joint-venture agreement with Banco do Brasil S.A. Given its strong balance-sheet position, the company remains focused on opportunistic expansion strategies that will drive growth.
UBS Group’s cost-control efforts are encouraging as reflected by the $2.7-billion decline in expenses in the past five years (ended 2019). Though expenses in 2020 flared up to some extent, UBS Group is confident to trim the cost/income ratio to 75-78% through 2022. We expect such efforts to support the company’s bottom-line growth and boost its operating efficiency.
Due to temperate growth in the European economy and the prevailing low rate environment in Switzerland and Europe, UBS group’s net interest income might continue to be impacted unfavorably. Also, UBS Group is subject to major regulatory supervision, being a Swiss systemic bank. Thus, it faces risk of higher legal expenses and provisions in the near term, on account of any fundamental modifications in the laws and regulations.
In addition, UBS Group’s capital-deployment activities are concerning. It rolled out a new share-repurchase program of $4 billion this January. Also, the company is seeking to execute repurchases of up to $100 million from its previous program. Though management is aimed at raising dividend by one cent annually, the company’s volatile quarterly performance and the current economic turbulence make us apprehensive about its commitment.
Stocks to Consider
Other stocks in the financial space worth considering include KeyCorp
KEY
,
Fifth Third Bancorp
FITB
and B
ank Of America Corporation
BAC
.
KeyCorp has been witnessing upward earnings estimates revision for the current year, over the past 60 days.
Fifth Third Bancorp’s current-year earnings estimate has been revised upward in 60 days’ time.
Bank of America’s earnings estimate for the ongoing year moved north in the past two months.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
