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UBS (UBS) Down 1.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for UBS (UBS). Shares have lost about 1.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is UBS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

UBS Q1 Earnings & Revenues Decline Y/Y, Expenses Escalate

UBS Group AG reported first-quarter 2023 net profit attributable to shareholders of $1.03 billion, down 51.8% from the prior-year quarter.

The company’s quarterly performance was worrisome, as there were increases in expenses. Also, lower revenues acted as a major headwind.

The performance of the Personal & Corporate Banking division is impressive. However, the Asset Management arm, Group Functions, The Investment Bank and Global Wealth Management segments did not perform well.

Revenues Decrease & Expenses Increase

UBS Group AG’s total revenues decreased 6.8% from the prior-year quarter to $8.74 billion.

Operating expenses increased 8.7% year over year to $7.21 billion.

UBS Group AG reported total credit loss expenses of $38 million in the quarter compared with expenses of $18 million in the year-ago quarter.

Business Divisions’ Performance

Global Wealth Management’s first-quarter operating profit before tax was $1.21 billion, down 7.2% year over year. The fall was driven by a decrease in recurring net fee income and transaction-based income.

Asset Management’s operating profit before tax declined 46% year over year to $94 million. The fall was mainly due to a decline in total revenues.

Personal & Corporate Banking reported an operating profit before tax of $553 million, up 40% year over year. The rise was driven by an increase in revenues.

The Investment Bank unit’s operating profit before tax was $477 million, down 48.6% from the prior-year quarter. The fall was due to a decline in total revenues in global banking, as well as the global markets business arm.

Group Functions reported an operating loss before tax of $890 million in the reported quarter compared with a loss of $112 million in the year-ago quarter.

Capital Position Declines

Total assets decreased 4.6% from the end of the previous quarter to $1.05 trillion.

CET1 capital decreased marginally year over year to $44.59 billion. As of Mar 31, 2023, UBS Group AG’s invested assets were $4.16 trillion, down 5% year over year.

UBS Group AG’s return on CET1 capital was 9.1% as of Mar 31, 2023, compared with 19% as of Mar 31, 2022.

The risk-weighted assets (RWA) increased 3.1% year over year to $321.7 billion.

Capital Deployment Activities

In the reported quarter, UBS Group AG repurchased shares worth $1.3 billion.

Outlook (Standalone Basis)

2Q23

The company expects NII to sequentially decline in the mid-single-digit range.

2023

NII is expected to be broadly in line with the fourth-quarter 2022 annualized level.

It expects costs, excluding the impact of the acquisition, litigation and foreign exchange, to increase 2-3%. It is on track to deliver $1.1 billion in gross cost savings by the year end.

The CET1 capital ratio and the CET1 leverage ratio are targeted at around 13% and 3.7%, respectively. It projects regulatory-driven updates to models to increase RWA by $4 billion. Model updates increased RWA by $1.1 billion in first-quarter 2023.

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How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, UBS has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

UBS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

UBS belongs to the Zacks Banks - Foreign industry. Another stock from the same industry, ICICI Bank Limited (IBN), has gained 1.8% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

ICICI Bank Limited reported revenues of $2.77 billion in the last reported quarter, representing a year-over-year change of +20%. EPS of $0.31 for the same period compares with $0.26 a year ago.

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