Earnings Edge: 2 Regional Banks Set to Break Out — or Break Down
April means we get earnings reports for the first three months of the year.
And the first major companies up are the bank stocks…
Over a dozen bank stocks are set to report earnings this week, including giants Bank of America Corp. (NYSE: BAC), JPMorgan Chase & Co. (NYSE: JPM), The Goldman Sachs Group Inc. (NYSE: GS) and Citigroup Inc. (NYSE: C).
Based on the SPDR S&P Bank ETF (NYSE: KBE), bank stocks are up 25% year-to-date, while the S&P 500 is up just 8%.
So, bank stocks are outperforming, and investors expect more good news as they get set for an earnings whirlwind this week.
But I don’t want to focus on the giants.
Today, we’ll take a look at a pair of regional banks, U.S. Bancorp (NYSE: USB) and The PNC Financial Services Group Inc. (NYSE: PNC).
Let’s dive in…
Earnings Edge Stock No. 1: The PNC Financial Services Group Inc.
Earnings Announcement Date: April 16, before the open.
Expectations: Earnings at $2.73 per share. Revenue at $4.1 billion.
Average Analyst Rating: Hold.
In the last two quarters, PNC Financial Services has topped analyst expectations easily, coming in 59% and 26% above the average estimate.
We want to see if that strong earnings momentum carried over into 2021 with first-quarter earnings later this week.
Despite a pandemic in 2020, PNC still grew loans, deposits and showed a strong balance sheet. That’s true across the board for the banking industry, and it’s why we’ve seen them off to such a strong start in 2021.
For PNC, the rally pushed the stock up just 20%. But for the past month and a half, shares have gone sideways.
Take a look.
PNC Is Trading Sideways
This period of consolidation is a wait-and-see moment for investors. Earnings are setting up to be the breakout x-factor for this sideways movement.
The orange line on the chart shows us that the stock is in a clear uptrend. And if we get any weakness on earnings, I’d buy the dip as long as it stays above that key trend line.
But the options market isn’t expecting fireworks with PNC’s earnings this week. Options traders are only pricing in a 1.6% price move. With the stock stuck in that tight channel for a month and a half now, a breakout is imminent.
Earnings will likely push the stock above or below the sideways channel, and an upside breakout is likely for PNC Bank. Don’t fight the trend.
Earnings Edge Stock No. 2: U.S. Bancorp
Earnings Announcement Date: April 15, before the open.
Expectations: Earnings at $0.95 per share. Revenue at $5.5 billion.
Average Analyst Rating: Outperform.
Investors are already in love with U.S. Bancorp. You can see the regional bank has an average analyst rating of “Outperform.” That’s out of 25 analysts that cover the stock, according to S&P Capital IQ.
Maybe that’s because the company posted a record in yearly revenue in 2020. It also passed the Federal Reserve December stress test with flying colors, and it’s looking to maintain its dividend and buy back shares of stock.
And what I like is that to go along with the record operating performance for the company, the stock’s price chart is trending higher as well.
Here’s a look at a rising wedge pattern in U.S. Bancorp…
USB Is Trending in the Right Direction
See how the red resistance line and green support line are both sloping upwards? That creates what’s known as a rising wedge pattern. And, when even talking about the basics of an uptrend, it checks all the right boxes — higher highs and higher lows.
Still, the wedge for U.S. Bancorp is set to breakout any day now, and earnings this week will likely be the culprit behind it.
The options market is sleeping on this potential breakout as well. It’s only pricing in a 1.7% move on earnings this week. Considering a breakout, up or down, could send the stock moving a quick 7%, I’d say there’s some mispricing going on in the options market.
Of course, any trade you place before the earnings announcement is a complete gamble. We don’t know what kind of curveballs the company could throw at us in the press release, earnings call or how investors will react to all the news.
That’s why I wait to trade until after the announcement. Then I can spot proven patterns that repeat themselves over and over again to find even bigger gains.
To learn more about my ultimate trading strategy, click here.
Chad Shoop is a Chartered Market Technician and options expert for Banyan Hill Publishing. He is the editor of three leading newsletters: Quick Hit Profits, Automatic Profits Alert and Pure Income. His content is frequently published on Investopedia and Seeking Alpha. Check out his YouTube Channel to see his latest market insights.
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Investing has consumed my life since college. While double majoring in finance and economics at the University of North Carolina at Greensboro, I founded the university’s economics club, joined the finance club and participated in the Chartered Financial Analyst research competition to represent our school.