Up 50% In The Last 12 Months, Where Is UBS Stock Headed?

+3.06%
Upside
30.87
Market
31.81
Trefis
UBS: UBS logo
UBS
UBS

UBS’ stock (NYSE: UBS) has gained 1% YTD, whereas S&P500 has increased 9% over the same period. Further, at the current price of $31 per share, it is trading at par with its fair value – Trefis’ estimate for UBS’s valuation

Amid the current financial backdrop, UBS stock has seen extremely strong gains of 100% from levels of $15 in early January 2021 to around $30 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. UBS is one of a handful of stocks that have increased their value in each of the last 3 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 26% in 2021, 4% in 2022, and 66% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that UBS underperformed the S&P in 2021.

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 JPM, V, 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 UBS see a strong jump?

The Swiss bank posted better-than-expected earnings in the fourth quarter of 2023. It reported total revenues of $10.86 billion – up 35% y-o-y, partly due to the consolidation of Credit Suisse revenues of $2.9 billion, and partly because of organic growth. In terms of key segments, the global wealth management revenues increased 18% y-o-y, followed by a more than 100% rise in personal & corporate banking units. Further, asset management and investment bank divisions also posted positive growth. On the cost front, total noninterest expenses witnessed an unfavorable increase of 88% in the quarter, leading to an adjusted net income of -$279 million vs $1.65 billion.

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UBS’s net revenues grew 18% y-o-y to $40.8 billion in FY2023. It was mainly driven by a 12% rise in wealth management and a 96% jump in the personal & corporate banking unit. Further, it also recorded a negative goodwill of $27.75 billion – a one-time gain on the acquisition of Credit Suisse. In terms of expenses, both the provisions for credit losses and operating expenses increased in the year. Altogether, the adjusted net income improved by more than 250% to $27.8 billion.

Moving forward, we expect the Q1 results to follow the same trend. Overall, UBS’ revenues are forecast to touch $46.5 billion in FY2024. Additionally, UBS’ adjusted net income is likely to remain around $3.95 billion. It will likely result in an annual GAAP EPS of $1.20, which coupled with a P/E multiple of just below 26x will lead to a valuation of $31.

 Returns Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 UBS Return 2% 1% 134%
 S&P 500 Return -1% 9% 132%
 Trefis Reinforced Value Portfolio -2% 5% 645%

[1] Returns as of 4/8/2024
[2] Cumulative total returns since the end of 2016

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