We recently compiled a list of the 10 Best European Bank Stocks to Buy According to Analysts. In this article, we are going to take a look at where Banco Santander, S.A. (NYSE:SAN) stands against the other European bank stocks.

Strong earnings, record shareholder returns and resilience amid falling interest rates were the catalysts behind European bank stocks delivering their best year in over a decade. On average, the stocks were up by more than 32% as they benefited from a high interest rate environment as the European central bank sought to keep inflation in check in 2024.

Due to their emphasis on fee-based income and wealth management services, major European banks have managed to stay profitable. Additionally, Eurozone banks came into 2024 with stronger balance sheets, lower non-performing loan ratios, and larger capital buffers thanks to strict regulatory reforms put in place following the 2008 financial crisis.

Interest rate cuts as the year came to a close did little to dent investor sentiments on the European bank’s outlook, as depicted by the Euro Stoxx Bank index rising to its highest level since 2010. While loan growth slowed due to the high interest rate environment, effective risk management did more than enough to offset the losses.

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The Stoxx 600 Europe Banks Index is predicted to see average price returns of over 8% in 2025, continuing the upward trend. Analysts claim that more value may be unlocked and that European banking stocks are still inexpensive when compared to their US counterparts. A favourable outlook for banking stocks is making now a good time for European governments and buyout companies to sell their holdings.

“We expect the unwind of public stakes at some European listed banks to continue at an uneven pace this year,” said Roberto Scholes, head of strategy at wealth manager Singular Bank. The moves would ” positively impact share prices as potential public interference dissipates.”

Likewise, President Donald Trump’s winning the hotly contested election is emerging as another factor that could continue pushing European bank stocks higher in 2025. That’s in part because the new administration has affirmed its commitment to deregulation tax cuts and fiscal stimulus expected to fuel deals and activities in the sector.

Deregulation is expected to spur banking deals in 2025 after topping highs of $41.5 billion in 2024. “We would expect 2025 to be another strong year for M&A as management teams have surplus cash burning a hole in their pockets and buybacks are becoming less accretive,” said Nick Brand, a fund manager at Polar Capital Global Financial Trust.

Similarly, investors have been drawn to Europe’s beat-down valuations across industries, with stock prices in the region trading at a record 40% discount to their US counterparts based on forward earnings multiples. There are indications that European M&A may continue to pick up in 2025 as buyout companies seek to deploy record quantities of unspent capital.

While there have been fears that banks would come under pressure as central banks in the region cut the benchmark interest rates, the sector appears to be more than prepared. A lower interest rate environment is expected to fuel deal-making expected to maintain the positive earnings momentum. Similarly, European bank balance sheets are more than equipped for the test. According to Bloomberg Intelligence, the sector median CET1 ratio, which measures capital levels, is at the highest level it has ever been since 2011, at 14.9%.

“Now that balance sheets are stronger and the product factories have been strengthened, European banks are now reconsidering larger deals,” JPMorgan Chase & Co. analyst Kian Abouhossein wrote in a note. “This renewed focus is positive for banks with discounted valuations that could become targets.” Stronger balance sheets and improved capital buffers are some of the factors that should allow the best European bank stocks to continue outperforming amid falling interest rates in 2025.

Our Methodology

To compile our list of the 10 best European bank stocks to buy according to analysts, we first made a list of all European banks and asset managers that trade on the NASDAQ and NYSE stock exchanges using stock screeners. We examined the banks, focusing on why they stand out as long-term investment plays. Finally, they were ranked based on Wall Street analysts’ upside potential.

At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Banco Santander, S.A. (NYSE:SAN)

Number of Hedge Fund Holders: 15

Stock Upside Potential as of January 24: 19.01%

Banco Santander, S.A. (NYSE:SAN) is one of the largest banks in Spain, specializing in providing various financial services, including time deposits, mutual funds, and current and savings accounts mortgages. It is one of the best European bank stocks to buy as it is reaping the rewards of digitization in a bid to enhance customer experience. It’s also benefiting from improved automation, making banking simpler and accessible to the masses.

Likewise, it logged solid third-quarter results characterized by a 2% growth in profit to €3.3 billion. The increase came as Banco Santander, S.A. (NYSE:SAN) continued to expand its customer base, adding 5 million new customers last year. In addition, it is benefiting from an aggressive expansion plan that has seen it strengthen its prospects in Europe and the US.

With a 41% year-over-year increase in revenue in the United States, the company’s Corporate & Investment Banking (CIB) segment is expanding. All things considered, Banco Santander, S.A. (NYSE:SAN) is growing its clientele and operations in every area. Backed by a solid balance sheet, Banco Santander continues to return value to shareholders by its 4.47% dividend yield.

Overall SAN ranks 3rd among the best European bank stocks to buy according to analysts. While we acknowledge the potential of SAN as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SAN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.