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Deutsche Bank’s stock (NYSE: DB) has gained 24% YTD, as compared to a 12% rise in the S&P500 over the same period. Further, it is currently trading at $17 per share, which is 17% above its fair value of just below $14 – Trefis’ estimate for Deutsche Bank’s valuation.

Amid the current financial backdrop, DB stock has shown strong gains of 35% from levels of $11 in early January 2021 to around $15 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. However, the increase in DB stock has been far from consistent. Returns for the stock were 15% in 2021, -8% in 2022, and 18% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that DB underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could DB face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The bank surpassed the consensus estimates of profit in the first quarter of 2024. It reported net revenues of $8.45 billion – up 2% y-o-y. While the investment bank (investment bank and sales & trading) revenues increased 15% y-o-y followed by a 6% rise in the asset management business, it was almost offset by a 4% drop in the corporate bank and a 1% decrease in the private bank segments. On the cost front, total noninterest expenses as a % of revenues witnessed a favorable decrease in the quarter. Overall, the adjusted net income improved by 11% y-o-y to $1.39 billion (Note – Deutsche Bank originally reports in € (Euros), the same has been converted to USD for ease of comparison).

The bank’s top line grew 9% y-o-y to $31.25 billion in FY 2023. It was because of a 16% growth in the noninterest revenues followed by a 2% increase in the net interest income due to a higher interest rate environment. On the cost front, provisions for credit losses witnessed an unfavorable increase of 26% y-o-y. Further, total noninterest expenses rose by 9% y-o-y. Altogether, the adjusted net income declined by 13% y-o-y to $4.62 billion.

Moving forward, we expect the same trend to continue in Q2 results. Overall, Deutsche Bank’s revenues are forecast to remain around $32.15 billion in FY2024. Additionally, DB’s adjusted net income margin is likely to see a slight drop in the year, leading to an annual GAAP EPS of $2.21. This coupled with a P/E multiple of just above 6x will lead to a valuation of $14.

[1] Returns as of 5/23/2024
[2] Cumulative total returns since the end of 2016

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.