We raise our Financial sector 2018E1 earnings from $247bn to $251bn as big banks and capital markets firms significantly exceed 1Q consensus estimates. Our 2018E Financial sector earnings remain below the bottom-up consensus, which is about $260bn now or 3.5% higher. We estimate 25% year over year (y/y) growth for Financials in 2018 (~10% ex. tax cut), which is a bit lower than consensus probably owing to our view of no more than three U.S. Federal Reserve (Fed) hikes in 2018, a 10yr yield that doesn’t materially exceed 3%, thus a flattening curve, and moderate paced loan growth that doesn’t exceed nominal GDP growth. But the consensus estimate for Financials is within reach, if markets avoid any sharp dislocations and buybacks are strong. On this earnings outlook, the Financial sector is about 13.5x 2018 earnings and Banks are 12x. For this reason, we have difficulty understanding how the strong 1Q results so far and the expected full 2018 earnings for banks are fully priced-in. So this note includes some bank valuation measures and concepts.
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