Rating Stocks in the Financial Sector: A Buy, Hold and Sell

NEW YORK (TheStreet) -- Buy: Citigroup (C)

Citigroup, a buy-rated stock, was lower in Monday trading, weighed down by the continuing budget deadlock in Congress. Shares were 1.6% lower to $48.34 in trading Monday, lagging the S&P 500 which was down 0.52%.

Massachusetts ruled on the Thursday that Citigroup was guilty of leaking information on Apple (AAPL) to investment firms before it was made available to the public. Citigroup will pay $30 million to settle the case.

Citigroup's fundamentals remain strong. TheStreet Ratings team rates Citigroup Inc as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate Citigroup Inc (C) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, increase in net income, solid stock price performance and attractive valuation levels. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Since the same quarter one year prior, revenues slightly increased by 2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Net operating cash flow has significantly increased by 1567.47% to $20,031 million when compared to the same quarter last year.
  • Compared to where it was trading one year ago, C is up 42.1% to its most recent closing price of $48.40. Looking ahead, although the push and pull of a bull or bear market could certainly alter the outcome, our view is that this stock's positive fundamentals give it good potential for further appreciation.
  • The net income increased by 42% when compared to the same quarter one year prior, rising from $2,946 million to $4,182 million.



Hold: BGC Partners (BGCP)

BGC Partners, a brokerage company for wholesale and real estate markets, reduced its third-quarter estimates for the period ended Sept. 30. The company expects revenue of between $410 million and $440 million, compared to $445.7 million for the year-ago quarter. BGC Partners is slated to report third-quarter earnings on Oct. 31.

BGC Partners shares were trading 0.92% lower to $5.36.

TheStreet Ratings team rates BGC Partners as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate BGC Partners (BGCP) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its compelling growth in net income, revenue growth and notable return on equity. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Capital Markets industry. The net income increased by 1660.3% when compared to the same quarter one year prior, rising from $1.96 million to $34.47 million.
  • Despite its growing revenue, the company underperformed as compared with the industry average of 12.2%. Since the same quarter one year prior, revenues slightly increased by 4.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Capital Markets industry and the overall market on the basis of return on equity, BGC Partners has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • BGC Partners reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, BGC Partners reported lower earnings of 16 cents vs. 19 cents in the prior year. This year, the market expects an improvement in earnings (49 cents vs. 16 cents).
  • Net operating cash flow has decreased to $52.51 million or 44.94% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.



Sell: Deutsche Bank (DB)

Deutsche Bank shares have fallen 1.97% to $46.24, symptomatic of Wall Street worries over political deadlock in Washington D.C.

In September, Chief Financial Officer Stefan Krause said the company is working to eliminate 250 billion euros of assets to reduce a European Union penalty on banks with large balance sheets.

TheStreet Ratings team rates Deutsche Bank AG as a Sell with a ratings score of D+. TheStreet Ratings Team has this to say about their recommendation:

"We rate Deutsche Bank AG (DB) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, weak operating cash flow and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Capital Markets industry. The net income has significantly decreased by 36.8% when compared to the same quarter one year ago, falling from $738.58 million to $466.56 million.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Capital Markets industry and the overall market, Deutsche Bank AG's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$17,276.43 million or 204.22% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Deutsche Bank AG's earnings per share declined by 41.5% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, Deutsche Bank AG reported lower earnings of 24 cents vs. $5.55 in the prior year. This year, the market expects an improvement in earnings ($5.25 vs. 24 cents).
  • Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.

Written by Keris Alison Lahiff.

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