Earnings season kicks off this week and one sector in particular will have more than a few important earnings reports and that is the financial sector. This week alone we will hear from Wells Fargo on Wednesday morning, Bank of America and Citigroup Thursday morning, and Goldman Sachs will report on Friday morning.
Looking at some of the sentiment indicators for the four financial stocks reporting this week, we see two themes: short sellers have shied away from shorting these stocks and option traders have been adding puts (bearish bets) pretty aggressively.
A short interest ratio is simply the number of shares sold short divided by the average daily trading volume. A high short interest ratio indicates bearish sentiment. Of the four stocks, none of them have a short interest ratio over 2.5. A short interest ratio over 5.0 is considered high and to give you an idea of a blue-chip stock with a really high one, the short interest ratio for AT&T (T) is 9.3 currently.
A high put/call ratio is indicative of bearish sentiment from option traders and for the four stocks in question, are all put/call ratios are relatively high. The numbers in the table reflect the percentile ranking of the current ratio as compared to the past year for that individual stock. As you can see, the put/call ratio for Wells Fargo is the highest it has been all year, meaning option traders are the most pessimistic toward WFC that they have been in the last 52 weeks. All four of the stocks have put/call ratios that rank in the top quartile of readings for the past year, meaning that option traders are relatively bearish on all four.
When we look at the collective analyst ratings for each stock, we finally see some disparity from a consensus. Analysts don’t seem to think very highly of Wells or Goldman, but are moderately bullish toward BAC and Citi.
Looking at the relative performance of these four stocks as compared to the S&P 500, the only one of the four that has beat the index over the past year is Wells Fargo. It is also interesting that Goldman and Wells have the two highest sentiment composite rankings (most bearish sentiment) and yet they have performed better than the other two which are more liked by investors as a whole.
Looking at the analyst expectations for this quarter, Wells is expected to earn $1.02 per share which is exactly what they earned last quarter. BAC is expected to post earnings of $0.32 per share this quarter after posting a loss of $0.04 per share last quarter. Citi posted EPS last quarter of $0.88, but that number is expected to drop drastically to $0.11 this quarter. Goldman is the only one of the four that is expected to show better earnings this quarter than last quarter with $4.70 EPS being the consensus versus last quarter’s $4.57 EPS.
All of these numbers may get confusing, but the bottom line is this: Wells Fargo and Goldman have outperformed from a price performance basis and from a fundamental standpoint and yet they are not as well liked as Bank of America and Citigroup. Nobody ever said investing made sense. If I were betting on which of these four stocks would perform better over the coming months, Wells Fargo and Goldman would get the nod.
