On Thursday, JPMorgan reaffirmed its confidence in UBS Group AG (NYSE:UBSG:SW) (NYSE: UBS) stock, maintaining an Overweight rating and a price target of CHF31.00.
The firm's assessment follows a robust second quarter performance by UBS, leading to an upward revision of the bank's 2024 adjusted earnings per share (EPS) estimates by 21%. The revision is attributed primarily to a lower tax rate and an expectation of increased Net Credit Loss (NCL) Revenues.
UBS has demonstrated progress in its integration of Credit Suisse, particularly in gross cost savings and the reduction of non-core risk-weighted assets (RWA).
The bank has also shown positive momentum in key metrics, such as Global Wealth Management (GWM) Net New Assets, which have reached $54 billion in the first half of 2024, equating to nearly 3% annual growth.
The integration process has led to a decrease in underlying quarterly costs (excluding litigation) to $9.1 billion in the second quarter, mainly due to non-core cost reduction.
JPMorgan anticipates that the next phase of integration will bring additional cost benefits, particularly to GWM and the Personal & Corporate Banking (PCB) divisions. The firm stands by its cost forecast of $33.5 billion for 2027.
Looking ahead, JPMorgan projects a Return on CET1 Capital (RoCET1) of 15.2% for UBS on an underlying basis in 2027, which surpasses UBS's own target of 15% by the end of 2026. In terms of valuation, UBS is currently trading at 1.3 times its present price to tangible book value (P/TBV). Based on 2027 estimates, the shares are trading at 8 times price to earnings (P/E) and 1.1 times P/TBV for a 14.8% Return on Tangible Equity (RoTE).
JPMorgan's analysis concludes that UBS remains a top pick within its European Banks portfolio, and the firm's Overweight rating signifies a positive outlook on the bank's stock performance.
In other recent news, UBS Group AG reported a net profit of $2.9 billion for the first half of 2024, marking notable progress following its acquisition of Credit Suisse. The company's return on CET1 capital stood at 9.2%, with a CET1 capital ratio of 14.9%.
UBS's Global Wealth Management and Asset Management divisions reported a pretax profit of $1.2 billion and $228 million respectively, despite a decrease in net new money in the latter. The Investment Bank division also delivered strong results with a $412 million operating profit.
In the wake of these developments, UBS remains focused on its capital return plans, including dividends and buybacks. The company is also committed to the successful integration of Credit Suisse, expecting $2.3 billion in related expenses for the latter half of the year.
Despite some challenges, such as a decrease in net interest income and net new lending outflows, UBS maintains confidence in its ability to navigate market volatility and invest strategically for long-term value.
Analysts from firms reviewing UBS's performance have noted both bullish and bearish highlights. On the positive side, UBS has achieved significant cost savings and shown strong performance in core businesses.
However, they also pointed out areas of concern, such as a decline in revenues in Personal & Corporate Banking and an expected pretax loss for NCL in the second half of the year. UBS is scheduled to discuss Q3 results and further updates on its progress in its next earnings call in October.
InvestingPro Insights
In light of JPMorgan's positive outlook on UBS Group AG, current real-time data from InvestingPro provides additional context for investors considering the bank's stock. UBS has maintained a consistent record of dividend payments, raising its dividend for the last three years and maintaining payments for 13 consecutive years, demonstrating a commitment to shareholder returns. Additionally, despite weak gross profit margins, UBS is trading at a low earnings multiple with an adjusted P/E ratio over the last twelve months as of Q1 2024 at just 9.7, which could signal an attractive valuation for investors.
The bank's strong revenue growth of nearly 29.47% over the last twelve months and a significant quarterly increase of 45.11% in Q1 2024 underscore the financial institution's robust performance. With a solid operating income margin of 16.84% and a healthy return on assets at 2.15%, UBS's operational efficiency is evident. Moreover, the bank's dividend yield stands at 1.87%, with a notable dividend growth of 131.0% over the last twelve months, highlighting its potential as an income-generating investment.
Investors seeking further analysis will find additional InvestingPro Tips on UBS, including expectations of profitability this year and a strong return over the last five years. For those interested in a deeper dive, InvestingPro offers even more insights, with a total of 10 tips available at: https://www.investing.com/pro/UBS.
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