Yahoo Finance 5 Reasons to Add Deutsche Bank (DB) to Your Portfolio Now
Amid extreme market volatility and recession risk on macroeconomic and geopolitical headwinds, investors are shying away from investing in stocks. Despite this, there are a number of stocks worth considering based on strong fundamentals and prospects. Hence, it seems to be a wise idea to add the Deutsche Bank DB stock to your portfolio now.
The company's expense reduction initiatives, driven by lowering headcount and rationalizing real estate holdings, are likely to aid in achieving a cost/income ratio target of below 62.5% by 2025. Also, deposit growth is expected to strengthen the balance sheet position and improve the funding base, while the sale of its non-strategic businesses and assets strengthens capital ratios.
Mentioned below are a few factors that make DB stock worth betting on right now:
Expense Reduction Initiative: Deutsche Bank's efforts to reduce expenses started bearing fruit. Total non-interest expenses saw a negative compound annual growth rate (CAGR) over the last three years (ended 2022). While expenses increased in first-quarter 2023, the company has been undertaking expense reduction initiatives by identifying additional cost-saving endeavors. This is expected to provide structural cost savings of more than €2 billion between 2022 and 2025.
By 2025, DB expects the cost/income ratio to be below 62.5%. We estimate the company to see a negative CAGR of 2.1% over five years (ending 2025) for the said metric.
Solid Balance Sheet: Deposits witnessed a positive CAGR over the last three years (ended 2022). However, the trend declined in the first quarter of 2023. Nonetheless, the company’s loan-to-deposit ratio as of Mar 31, 2023, was 82.4% compared with 79.7% in the year-ago quarter, reflecting a strong and stable funding base. Notably, we believe that the same is poised to grow and will strengthen its balance sheet.
Strong Liquidity: As of Mar 31, 2023, Deutsche Bank had a long-term debt of €128 billion, and cash, central bank and interbank balances worth €161 billion. As of Oct 12, 2022, it had a long-term issuer rating of A1 from Moody’s. Also, as of 2022 end, the company enjoyed a long-term issuer rating credit rating of A- and BBB+ from Standard & Poor’s, and Fitch, respectively. This renders the company favorable access to debt at attractive rates, and lowers the likelihood of default of interest and debt repayments if the economic situation worsens.
Strong Capital Position: Deutsche Bank remains focused on strengthening its capital position by exiting non-strategic businesses and assets. As of Mar 31, 2023, the Common Equity Tier 1 (CET 1) ratio improved to 13.6% from 13.4% in the fourth quarter of 2022. The company also expects to maintain a CET 1 ratio of 13% by 2025.
Steady Capital Deployment Activities: Management proposed a dividend per share of 30 cents for 2022. Although the company has not paid out any dividends in 2020 and 2019, it plans to return excess capital to shareholders through dividends and share buybacks in the near term. It also aims to achieve a payout ratio of 50% from 2025 onward.
The company also completed the share buyback of €0.3 billion in April 2022, which was announced in January 2020. With such share repurchase plans, along with dividend payments, the company aims to achieve capital distribution of €8 billion for financial years 2021-2025.
Looking at its price performance, shares of DB have lost 0.5% in the past six months against 5% growth recorded by the industry.
Image Source: Zacks Investment Research
Deutsche Bank currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Bank Stocks Worth Considering
A couple of other top-ranked stocks from the banking space are Mitsubishi UFJ Financial Group, Inc. MUFG and Pathward Financial Inc. CASH, each currently carrying a Zacks Rank #2.
MUFG’s 2023 earnings estimates have been revised 1.3% upward over the past 60 days. The company’s shares have gained 27.2% over the past six months.
The consensus estimate for CASH’s 2023 earnings has been revised 1.8% upward over the past 30 days. Over the past six months, the company’s share price has increased 2.9%.
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Deutsche Bank Aktiengesellschaft (DB) : Free Stock Analysis Report
Pathward Financial, Inc. (CASH) : Free Stock Analysis Report
Mitsubishi UFJ Financial Group, Inc. (MUFG) : Free Stock Analysis Report