Deutsche Bank (DB) to Offload $1B US Commercial Property Loans

Deutsche Bank DB looks like an attractive investment option now. The company is well positioned for future growth given its solid balance sheet and liquidity position, along with a stable deposit balance.

Analysts seem optimistic regarding the company’s earnings growth prospects. In the past 60 days, the Zacks Consensus Estimate for DB’s 2024 earnings has been revised 3.2% upward. DB currently carries a Zacks Rank #2 (Buy).

Mentioned below are a few factors that make DB stock worth betting on right now:

Revenue Strength: Growth in net revenues has remained a key strength at Deutsche Bank. Net revenues have recorded a CAGR of 2.7% over the last five years (ended 2023), with this upswing persisting in the first six months of 2024. Its efforts to shift focus from investment banking to more stable and capital-light businesses, like private banks, corporate banks and asset management units, are paying off as it is witnessing increased contributions from larger transition financing deals as well as from wealth management and private banking. In addition, the bank completed the acquisition of Numis in October 2023, which is likely to aid the Asset Management segment in the upcoming period. These efforts are expected to boost revenues in the future.

Solid Liquidity: Deutsche Bank’s liquidity position is robust, with a liquidity coverage ratio of 136% in the first half of 2024. As of Jun 30, 2024, Deutsche Bank’s total debt (comprising long-term debt and other short-term borrowings) of €119.5 billion was lower than its cash, central bank and interbank balances worth €155.6 billion. This showcases that the company has sufficient resources to fulfill its obligations. It enjoyed a long-term issuer rating of A and A1 from Standard & Poor’s and Moody’s, respectively. This renders the company favorable access to debt at attractive rates, reducing the likelihood of default of interest and debt repayments if the economic situation worsens.

Strong Capital Position: The company is focused on strengthening its capital position. As of Jun 30, 2024, the Common Equity Tier 1 (CET 1) ratio was 13.5%. Risk-weighted asset (RWA) reductions and strong organic capital generation enabled the bank to see improvement in the CET1 ratio. As of Jun 30, 2024, €19 billion of RWA reductions driven by capital efficiency measures have been achieved, out of the target to reach €25-30 billion in reductions by 2025-end.

Impressive Capital Distribution Activities: Deutsche Bank's plans to return excess capital to shareholders through dividends and share buybacks look impressive. For 2024 and 2025, the company plans to pay dividends of 68 cents and €1 per share, respectively. It also aims to achieve a payout ratio of 50% from 2025 onward.

In July 2024, the bank completed the share repurchase program launched on Mar 4, 2024. Under this program, 46.4 million shares were repurchased for € 675 million, bringing cumulative shareholder distributions through dividends and share repurchases to € 3.3 billion since 2022.

With such share repurchase plans, along with dividend payments, the company is committed to capital distributions of €8 billion over the financial years 2022-2026. Given the company’s strong balance sheet and favorable payout rate compared with the industry, its future capital distribution activities seem sustainable.

Favorable Valuation: DB stock looks undervalued right now with respect to its price-to-book (P/B) and price-to-earnings (P/E) (F1) ratios. It has a P/B ratio of 0.39, lower than the industry average of 0.90. Moreover, the company’s P/E (F1) ratio of 7.14 is below the industry average of 7.87.

Looking at its price performance, shares of DB have gained 16.1% in the past six months compared with 14.3% growth recorded by the industry.

Other Stocks Worth Considering

A couple of other top-ranked stocks from the same space are Mitsubishi UFJFinancial Group, Inc. MUFG and BNP PARIBAS BNPQY.

MUFG’s 2024 earnings estimates have been revised 11.4% upward over the past 30 days. It currently carries a Zacks Rank 1 (Strong Buy). The company’s shares have gained 17% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for BNPQY’s 2024 earnings has been revised 1% upward over the past 30 days. Over the past six months, the company’s share price has increased 17.2%. It currently carries a Zacks Rank 2.

Zacks Investment Research

Deutsche Bank delivered resilient H1 2024 results with revenues up 2% and strong fee income growth, despite a significant Postbank litigation provision impacting profitability. CET1 ratio, liquidity, and capital distribution targets remain robust, and the bank reaffirmed its 2025 financial goals.

Original document: Deutsche Bank Aktiengesellschaft [DBK] Press release — Jul. 25 2024