Skip to Content
Stock Strategist Industry Reports

Key Takeaways From Banks' First-Quarter Earnings

We're maintaining our call on the U.S. banks and will know a lot more by the second quarter.

Mentioned: , , , , , , , , ,

The traditional U.S. banks we cover have finished reporting first-quarter results, and we have a lot more information than we did heading into earnings season. This remains an extremely difficult situation to analyze. Nobody knows exactly how the coronavirus and the economy will develop, and nobody knows what future credit losses will be. Even so, after reviewing the latest disclosures and rerunning our scenario analysis, we still think the traditional U.S. banks are undervalued. While much of the market has generally recovered to some degree, many of the banks have not. In a market where bargains are more difficult to find than several weeks ago, we think the banks are still worth considering.

As we argued in our previous piece, we think today's valuations are a debate about capital adequacy, not about earnings per share for the next quarter or year. We still calculate that something worse than the U.S. Federal Reserve's severely adverse stress test scenario would have to occur for today's valuations to make sense. As such, we think the odds of superior returns for investors at today's valuations are still constructive. Nobody knows exactly what credit losses will look like in the future, or how long the COVID-19-related lockdowns and economic downturn will last, which makes investing in the banks tough. The risks are real, but on a probability-adjusted basis, we think many of the banks offer an attractive margin of safety today.

Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.