Up 24% YTD, What To Expect From Deutsche Bank Stock?

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

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