Wells Fargo & Co (WFC), And One Type Of Play In This Space

For the recent quarter, JPMorgan Chase & Co. (NYSE:JPM) posted a 33% surge in its net income and posted a record quarter, yet the Street wasn’t delighted with these results. This was because the bank’s revenue slipped by 3%, while its net interest income fell by 6%. Furthermore, the bank released $1.2 billion in loan-loss reserves to bolster its earnings, but it effectively lowered JPMorgan Chase & Co. (NYSE:JPM)’s risk-taking capacity.

Goldman Sachs Group, Inc. (NYSE:GS) also posted mixed results. Its quarterly revenue from investment banking rose by 36% y-o-y, while its quarterly net income rose by 5%. This was bolstered by its lending and investing businesses, which raised $2 billion in capital and saved some grace.

However, its operational expenses rose by 36%, which, coupled with a 7% decline in bond-trading revenue, has raised some eyebrows. Analysts believe the upbeat results were a “one-time” thing, thanks to a pickup in bond underwriting, which was primarily driven by low interest rates and $85 billion worth of liquidity injections.

A short conclusion

At the current prices, shares of Wells Fargo & Co (NYSE:WFC), JPMorgan and Goldman Sachs Group, Inc. (NYSE:GS) trade at forward earnings multiples of 9x, 8x and 9x, respectively, indicating that these banks are undervalued.

Although analysts expect their annual EPS to grow around 7% each for the next five years, I believe that Wells Fargo would make a better pick due to the housing recovery and its aircraft-leasing business.

The article A Value Play in Banking originally appeared on Fool.com and is written by Piyush Arora.

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