Credit Suisse Stock Likely To Beat Consensus In Q4?

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Credit Suisse (NYSE: CS) is scheduled to report its fiscal Q4 2020 results on Thursday, February 18. We expect Credit Suisse to likely beat the consensus estimates for revenues and earnings. The bank reported weak third-quarter results with revenues of $4.76 billion – down by 10% y-o-y. It was primarily driven by lower net interest income due to the challenging interest rate environment, partially offset by growth in the investment bank segment (includes both sales & trading and investment banking businesses). We expect the same trend to drive the fourth-quarter results. Altogether, Credit Suisse is expected to report a marginal drop in the full year 2020 revenues on a year-on-year basis. (Note: – Credit Suisse reports its results in CHF (Swiss Francs), the same has been converted to USD (U.S. Dollars) for ease of comparison.)

Our forecast indicates that Credit Suisse valuation is around $12 per share, which is 11% lower than the current market price of around $14. Look at our interactive dashboard analysis on Credit Suisse’s pre-earnings: What To Expect in Q4? for more details. 

(1) Revenues expected to be marginally ahead of the consensus estimates

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Trefis estimates Credit Suisse’s fiscal Q4 2020 revenues to be around $6.03 billion, 4% above the $5.80 billion consensus estimate. The bank has reported a 2% y-o-y growth in its cumulative nine-month revenues, mainly due to the strength in its sales & trading and investment banking businesses. On the flip side, its wealth management business has suffered due to a lower interest rate environment, a drop in assets under management (AuM), and lower performance fees. We expect the same trend to continue in the fourth-quarter results, restricting the full-year 2020 revenues to $22.5 billion – slightly lower than the 2019 figure.

The growth in sales & trading and investment banking businesses was due to higher trading activity and a jump in capital market deal volume, respectively. Both the trading and deal volumes were higher due to uncertain market conditions and the Covid-19 crisis. However, as the economic conditions improve, we expect the sales & trading and investment banking revenues to normalize. Further, the low-interest environment is unlikely to see an immediate recovery. That said, recovery in economic conditions will likely boost fund inflows and loan growth, benefiting Credit Suisse’s top-line. Overall, the above factors will likely lead the bank’s revenues to $24.6 billion in FY2021. Our dashboard on Credit Suisse revenues offers more details on the company’s segments.

2) EPS likely to comfortably beat the consensus estimates

Credit Suisse Q4 2020 adjusted earnings per share (EPS) is expected to be $0.27 per Trefis analysis, almost 22% above the consensus estimate of $0.22. While the Covid-19 crisis has increased the risk of loan defaults, the bank has significantly raised its provision for credit losses to compensate for that risk. We expect the same trend to drive the fourth-quarter results, leading to an EPS figure of around $1.45 for the full-year 2020. Thereafter, as the consumer demand sees some more recovery, provisions for credit losses are expected to see some favorable drop. Additionally, the bank is likely to re-start its share buyback program in FY 2021. Overall, the above factors coupled with higher revenues will likely enable the bank to report an EPS of around $1.93 in FY2021.

(3) Stock price estimate 11% lower than the current market price

Going by our Credit Suisse Valuation, with an EPS estimate of around $1.93 and a P/E multiple of just above 6x in fiscal 2021, this translates into a price of $12, which is 11% below the current market price of around $14.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

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