Up 18% in 2023, Where Is Deutsche Bank Stock Headed?

-9.44%
Downside
12.97
Market
11.75
Trefis
DB: Deutsche Bank logo
DB
Deutsche Bank

Deutsche Bank’s stock (NYSE: DB) has gained 2% YTD, as compared to a near zero change in the S&P500 over the same period. Further, it is currently trading at $14 per share, which is 18% above its fair value of just below $12 – Trefis’ estimate for Deutsche Bank’s valuation.

Amid the current financial backdrop, DB stock has shown strong gains of 25% from levels of $11 in early January 2021 to around $14 now, vs. a similar change for the S&P 500 over this roughly 3-year period. However, the increase in DB stock has been far from consistent. Returns for the stock were 15% in 2021, -8% in 2022, and 18% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that DB underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could DB face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The bank outperformed the consensus estimates of profit in the third quarter of 2023. It reported net revenues of $7.76 billion – up 11% y-o-y, driven by a 30% rise in the corporate bank, a 12% growth in the private bank, and a 3% increase in investment bank segments. However, the positive impact was somewhat offset by a 3% decrease in the asset management business. Overall, the adjusted net income improved 5% y-o-y to $1.28 billion (Note – Deutsche Bank originally reports in € (Euros), the same has been converted to USD for ease of comparison).

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The bank’s top line grew 8% y-o-y to $24.1 billion in the first nine months of FY 2023. It was because of a 7% growth in the net interest income due to a higher interest rate environment, followed by a 10% rise in the noninterest revenues. On the cost front, provisions for credit losses witnessed an unfavorable increase over the same period. Overall, the adjusted net income declined by 4% y-o-y to $3.65 billion.

Moving forward, we expect the same trend to continue in Q4 results. Overall, Deutsche Bank’s revenues are estimated to remain around $31.1 billion in FY2023. Additionally, DB’s adjusted net income margin is likely to see some drop in the year, leading to an annual GAAP EPS of $2.05. This coupled with a P/E multiple of just below 6x will lead to a valuation of $12.

 Returns Jan 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 DB Return 2% 2% -15%
 S&P 500 Return 0% 0% 112%
 Trefis Reinforced Value Portfolio -3% -3% 591%

[1] Month-to-date and year-to-date as of 1/10/2024
[2] Cumulative total returns since the end of 2016

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