The recent rating actions and warnings of Moody’s and Fitch are leading to banking stocks sliding lately. While the industry shows signs of stability following the crisis caused by bank failures earlier this year, investors are concerned about the negative stance of the rating agencies.

Given this backdrop, it could be worth watching JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), and Wells Fargo & Company (WFC), which are majorly owned by smart money.

Before delving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry’s prospects.

On the positive side, considering the favorable job market data, interest rates are not expected to decline anytime soon. So, banks should be able to generate high-interest income.

On the other hand, the rating downgrade of 10 U.S. banks by Moody’s earlier this month and Fitch’s recent warning of banking giants’ potential rating downgrade raise significant concerns about the prospects of the U.S. banking system.

The rating downgrades could raise the cost of capital for banks, putting pressure on their margins. However, a high-interest rate environment could be supportive for banks.

Let’s take a closer look at the fundamentals of the featured stocks.

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). Institutions own 70.7% of JPM. Of the 3,782 institutions owning the stock, 1,804 recently increased their positions.

In terms of the trailing-12-month net income margin, JPM’s 35.38% is 37.9% higher than the 25.66% industry average. Likewise, its 17.11% trailing-12-month Return on Common Equity is 52.9% higher than the industry average of 11.19%. Furthermore, the stock’s 1.24% trailing-12-month Return on Total Assets is 8.8% higher than the industry average of 1.14%.

JPM’s total net revenue - reported for the second quarter ended June 30, 2023, increased 34.5% year-over-year to $41.31 billion. Its net income rose 67.3% year-over-year to $14.47 billion. In addition, its EPS came in at $4.75, representing an increase of 72.1% year-over-year.

Its return on common equity (ROE) was 20%, compared to 13% in the year-ago period. Also, its CET1 ratio was 13.8%, compared to 12.2% in the prior-year quarter.

Analysts expect JPM’s EPS and revenue for the quarter ending September 30, 2023, to increase 22.5% and 20.6% year-over-year to $3.82 and $39.46 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 21.2% to close the last trading session at $148.63.

JPM’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a C grade for Growth, Momentum, Stability, and Quality. It is ranked #4 out of 10 stocks in the Money Center Banks industry. To see JPM’s ratings for Value and Sentiment, click here.

Bank of America Corporation (BAC)

BAC provides banking and financial products and services for individual consumers, small and middle-market businesses, institutional investors, large corporations, and governments worldwide. Institutions hold 69.7% of BAC shares. Of the 2,809 institutions owning BAC shares, 1,230 recently increased their position in the stock.

In terms of the trailing-12-month net income margin, BAC’s 30.88% is 20.4% higher than the 25.66% industry average. Likewise, its 11.41% trailing-12-month Return on Common Equity is 2% higher than the industry average of 11.19%.

For the second quarter ended June 30, 2023, BAC’s total revenue, net of interest expense, increased 11.1% year-over-year to $25.20 billion. Its net income applicable to common stockholders rose 19.7% year-over-year to $7.10 billion.

Additionally, its EPS came in at $0.88, representing an increase of 20.5% year-over-year. Also, its net interest income rose 13.8% over the prior-year quarter to $14.16 billion. In addition, its CET1 ratio came in at 11.6%, compared to 10.5% in the year-ago quarter.

Street expects BAC’s EPS and revenue for the quarter ending September 30, 2023, to increase 0.4% and 2.7% year-over-year to $0.81 and $25.17 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 2.5% to close the last trading session at $29.28.

BAC’s bleak prospects are reflected in its POWR Ratings. It has an overall rating of C, which translates to Neutral in our proprietary rating system.

It is ranked first in the Money Center Banks industry. It has a C grade for Growth, Stability, Sentiment, and Quality. Click here to see BAC’s ratings for Value and Momentum.

Wells Fargo & Company (WFC)

WFC, a diversified financial services company, provides banking, investment, mortgage, and consumer and commercial finance products and services in the United States and internationally. It operates through four segments: Consumer Banking and Lending; Commercial Banking; Corporate and Investment Banking; and Wealth and Investment Management. Of the 3,659 outstanding WFC shares, institutions own 74.4%. Out of 2,173 institutions, 800 recently increased their positions in the stock.

WFC’s total revenue for the second quarter ended June 30, 2023, increased 20.5% year-over-year to $20.53 billion. Its net income rose 57.2% year-over-year to $4.94 billion. Its EPS came in at $1.25, representing an increase of 66.7% year-over-year.

Its ROE came in at 11.4%, compared to 7.2% in the prior-year quarter. Also, its net interest income rose 29% year-over-year to $13.16 billion. In addition, its CET1 ratio came in at 10.7% compares to 10.4% in the year-ago period.

For the quarter ending September 30, 2023, WFC’s revenue is expected to increase 2.9% year-over-year to $20.08 billion. Its EPS for the same quarter is expected to decline 4.8% year-over-year to $1.24. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 5% to close the last trading session at $42.47.

WFC’s uncertain outlook is reflected in its POWR Ratings. It has an overall rating of C, which translates to Neutral in our proprietary rating system.

It has a C grade for Growth, Value, Momentum, Stability, and Quality. It is ranked #2 in the Money Center Banks industry. To see WFC’s rating for Sentiment, click here.

43 Year Investment Pro Shares Top Picks

Steve Reitmeister is best known for his timely market outlooks & unique trading plans to stay on the right side of the market action. Click below to get his latest insights…

Steve Reitmeister’s Trading Plan & Top Picks >

JPM shares were trading at $148.34 per share on Friday morning, down $0.29 (-0.20%). Year-to-date, JPM has gained 13.08%, versus a 14.31% rise in the benchmark S&P 500 index during the same period.

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.

More...