Trump to visit Fed on Thursday amid Powell feud, renovation probe
On Tuesday, UBS analysts adjusted their stance on Erste Group Bank (EBS:AV) (OTC: EBKDY (OTC:EBKDY)), downgrading the stock from Buy to Neutral, though they increased the price target from EUR63.00 to EUR65.00. The move reflects a reassessment after the bank’s shares experienced a 7% drop following its recent quarterly results. With a current market capitalization of $28.31 billion, the stock has demonstrated remarkable strength, posting an impressive 80% return over the past year. This recent decline came despite the stock’s strong performance over the last three months, where it gained 36% and outperformed the Stoxx Europe 600 Banks Index (SX7P) by 4.2%. According to InvestingPro analysis, the stock currently trades near its 52-week high of $36.84.
UBS analysts attributed the prior gains partly to the market’s anticipation of a potential ceasefire between Russia and Ukraine, which provided a positive option value. Investors were also attracted by the prospect of significant capital returns, as Erste was expected to offer distributed yields above the sector average. However, the anticipated second leg of this investment thesis, based on the Q4 results, did not materialize as expected.
Despite the downgrade, UBS acknowledges Erste’s robust capital position. The bank’s pro-forma Basel IV Common Equity Tier 1 (CET1) ratio stood at a strong 15.6% at the end of Q4 2024. Trading at a P/E ratio of 8.49, InvestingPro data shows the stock is trading at a low multiple relative to its near-term earnings growth. UBS estimates that Erste will have €3 billion in excess capital by the end of 2025, accounting for 12% of its market cap. This positions the bank well for organic growth in risk-weighted assets (RWA) next year. InvestingPro subscribers can access 10+ additional key metrics and insights about Erste’s financial health, which currently rates as "GOOD" on the platform.
However, Erste’s management seems to be prioritizing inorganic growth opportunities, which suggests that significant shareholder distributions are more likely to be announced with the full-year results next year. The bank currently offers a dividend yield of 2.9%, with dividend growth of 45.76% in the last period. Investors are thus expected to see an 8% distributed yield this year, which falls below the sector average. In the absence of mergers and acquisitions, UBS forecasts a 10% distributed yield in 2026E, including a €1 billion share buyback program. UBS analysts believe that waiting for this potential yield in 2026 may be too long for investors, especially when similar yields are available in the sector this year, coupled with mid-single digit earnings per share (EPS) upgrades expected for Q4 2024.
In other recent news, Deutsche Bank (ETR:DBKGn) has adjusted its price target for Erste Group Bank, increasing it from EUR 69.00 to EUR 72.00 while maintaining a Buy rating. This change comes after Erste Group Bank’s fourth-quarter 2024 performance, which showed solid operational results despite a 6% miss on the bottom line due to higher costs and loan losses. The bank’s pre-provision profit met expectations, driven by improved net interest income and fees. Deutsche Bank’s analysis suggests that Erste Group Bank’s 2025 guidance indicates a strong outlook, with the potential for guidance upgrades throughout the year. The analyst’s estimates are currently about 3% ahead of consensus forecasts. Although the announcement coincided with a lower-than-expected share buyback of approximately EUR 700 million, Deutsche Bank remains optimistic about the bank’s future. Investors are likely to keep a close watch on Erste Group Bank’s performance, particularly in light of Deutsche Bank’s positive outlook and potential for further forecast revisions.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.