It’s been a tough year for banks and the financial services industry, primarily from the implosion of several regional lenders that resulted in government takeovers.
Year to date, the S&P Banks Select Industry Index is down 7%. That compares to a 20% increase in the benchmark S&P 500 index. While the share prices of smaller regional lenders have been hit hard, sentiment towards all banks has been hurt by turmoil across the industry.
Recent financial firms’ Q2 earnings have helped to improve sentiment somewhat, although the second quarter prints were uneven. While some banks knocked it out of the park with their results, others struck out, further depressing their share price in the process. So buyer beware of these three financial services stocks to dump immediately.
Goldman Sachs (GS)
Until deals heat up again on Wall Street, it’s best to steer clear of U.S. investment bank Goldman Sachs (NYSE:GS).
This point was driven home when the company issued its Q2 report a few weeks back. Goldman Sachs announced earnings per share (EPS) of $3.08, which was below the $3.18 expected among analysts. Revenue amounted to $10.90 billion, slightly better than the $10.84 billion Wall Street forecast. GS Executives had previously warned that trading revenue was likely to decline 25% in Q2.
Goldman Sachs continues to struggle with a global slump in investment banking and trading activity. This as the number of mergers and acquisitions (M&A) and initial public offerings (IPOs) remains in a deep slump.
Goldman’s latest earnings were also hurt by a write-down of its commercial real estate assets and an impairment charge related to its planned sale of fintech unit GreenSky. Goldman Sachs gets most of its revenue from deals and trading. GS stock has slipped 3% over the last six months.
American Express (AXP)
American Express (NYSE:AXP) reported mixed Q2 earnings that have pressured the stock. The credit card giant reported EPS of $2.89, which was better than the consensus forecast of $2.81 among Wall Street analysts.
On the other hand, revenue for the quarter ending June 30 clearly missed the mark, coming in at $15.05 billion. That was well below the consensus estimate of $15.41 billion. Looking ahead, AmEx reaffirmed its full-year 2023 guidance for earnings of $11.00 to $11.40 a share.
American Express did its best to put a positive spin on the Q2 results. It mentioned seeing record levels of spending on its credit cards, notably through purchases related to travel and entertainment.
However, analysts and investors don’t seem convinced. AXP stock has fallen 5% since its earnings print, lowering its 12-month gains to 10%. The stock has received several analyst downgrades in recent months, including at investment bank Robert W. Baird & Co., which lowered its rating from Buy to Hold, citing a poor risk/reward scenario.
Citigroup (C)
Citigroup’s (NYSE:C) Q2 earnings appeared good on the surface. But in reality, the results weren’t so great.
The bank reported Q2 results that beat expectations on the top and bottom lines, with EPS of $1.33 versus the expected $1.30, and revenue of $19.44 billion compared to the forecasted $19.29 billion. However, Citigroup’s revenue was down 1% from a year earlier due to a decline in its investment banking business. In addition, net income was down 36% from the same period of 2022.
C stock actually fell 4% on news of the Q2 report. The lender’s share price is now down 10% over the last 12 months. The bank touted that revenue from personal banking and wealth management rose 6% during Q2 of this year to $6.4 billion driven by strong loan growth.
Yet that seemed to provide little comfort to analysts. Citigroup said it returned $2 billion to shareholders through dividends and stock buybacks in Q2. But it doesn’t seem to have helped the stock’s performance, making Citigroup a stock to dump ASAP.
On the date of publication, Joel Baglole held a long position in C. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
