Deutsche Bank (NYSE: DB) is scheduled to report its fiscal Q4 2020 results on Thursday, February 4. We expect Deutsche Bank to likely beat the consensus estimates for revenues and earnings. The bank reported third-quarter revenues of $7 billion – up by19% y-o-y, driven by growth in Investment Banking and Sales & Trading businesses. It was partially offset by a 20% drop in the net interest income due to interest rate headwinds. We expect the same to drive the fourth-quarter results. Overall, Deutsche Bank is expected to report positive growth in the full year 2020 revenues on a year-on-year basis.
Our forecast indicates that Deutsche Bank’s valuation is around $8 per share, which is 21% lower than the current market price of around $10. Look at our interactive dashboard analysis on Deutsche Bank’s pre-earnings: What To Expect in Q4? for more details.
(1) Revenues expected to be marginally ahead of consensus estimates
Trefis estimates Deutsche Bank’s fiscal Q4 2020 revenues to be around $6.74 billion, around 30 million above the $6.71 billion consensus estimate. The bank has seen positive revenue growth in 2020 – cumulative nine months revenues have increased by 8% y-o-y to $21.47 billion from $19.95 billion a year ago. This growth was driven by higher sales & trading and investment banking revenues, partially offset by lower net interest income. We expect the same to be reflected in the fourth-quarter results, leading the full-year 2020 revenues to $28.2 billion – up 9% y-o-y.
The growth in Sales & Trading and investment banking was fueled by higher trading volumes and a jump in underwriting deals respectively. However, as the economic conditions improve, we expect the trading and deal volumes to normalize. Further, a low-interest environment is expected to remain for the next 1-1.5 years. Both these factors will likely reduce the bank’s revenues to $27.24 billion in FY2021. Our dashboard on Deutsche Bank Revenues offers more details on the company’s segments.
2) EPS likely to beat the consensus estimates
Deutsche Bank Q4 2020 adjusted earnings per share (EPS) is expected to be $0.21 per Trefis analysis, almost 9% above the consensus estimate of $0.19. The bank announced its most extensive restructuring plan to date in FY 2019 which weighed on its top and bottom line. Its Q4 2019 EPS suffered due to lower revenues and restructuring charges. The bank has significantly increased its provisions for credit losses in the first nine months of 2020 to cater to the loan default risk. However, the recent improvement in consumer demand is likely to improve the loan repayment capability, resulting in a favorable decrease in credit loss provisions. This coupled with higher revenues is likely to boost Deutsche Bank’s net income in the quarter.
We expect the EPS to remain around $0.40 for full-year 2020, compared to -$3.04 in the year-ago period. Thereafter, as the economic conditions improve, we expect the earnings to further improve to $0.93 in FY 2021.
(3) Stock price estimate 21% lower than the current market price
Going by our Deutsche Bank Valuation, with an EPS estimate of around $0.93 and a P/E multiple of just below 9x in fiscal 2021, this translates into a price of $8, which is 21% below the current market price of around $10.
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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