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TheStreet Open House

Trading Bank Earnings, Part 1

Stocks in this article: JPMBACWFCC

NEW YORK (TheStreet) -- Several weeks ago I reviewed 11 of the largest banks before earnings and identified those that you could expect earnings surprises from. Now, in a new series of articles, I will break down the earnings results and identify the best investment opportunities among these banks plus 22 other financial service firms/banks in four different categories: the four largest money centers (this article); 12 regional banks, nine financial service firms (credit card companies, asset management firms) and eight global banks with an extensive U.S. presence.

So, how did the largest money center banks with assets of more than $1 trillion fare, and how can you profit going forward? Among the groups I follow, the megabanks had the lowest rate of meeting or beating analysts' estimates, at 50%, and stock price appreciation of just 0.4% over three weeks, which is the lowest of all other groups including the 12 largest regionals, at 0.5%, eight global banks, at 0.9%, and the nine financial service companies, at 1.6%. The table below indicates key metrics and highlights which banks met or beat earnings and those that missed and by how much.

Of the four megabanks, only two met or exceeded first-quarter 2014 expectations: Wells Fargo (WFC) beat by 9.4%, and Citigroup (C) beat by 6%. The two that missed -- JPMorgan Chase (JPM), by 9.2%; and Bank of America (BAC), by 200% -- missed due to litigation expense on mortgage fraud settlement charges. Clearly the winner of the group was Wells Fargo with the best beat and highest share price appreciation over the last 22 days, just prior and after earnings, of 3.9%.

Wells also is the most consistent of the group, beating in all but one of the last 12 quarters. However, based on book value, Wells Fargo is not cheap at 1.62 times book. The other winner of the group was Citigroup, and although it failed the second half of the Federal Reserve's Stress Test (CCAR) for shareholder distributions and had the lowest number of beats in the last three years, it performed admirably this quarter, with a 6% beat and 3.2% price appreciation over three weeks. Additionally, it is the cheapest stock based on price-to-book ratio, which is 0.72.

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