Higher Costs Hurt East West Bancorp (EWBC): Time to Sell?
East West Bancorp, Inc.’s EWBC profitability is likely to be negatively impacted because of continued rise in expenses. While the company remains well poised for organic growth, supported by rise in loan balances along with higher rates, deteriorating asset quality remains a major concern.
The company has been witnessing downward estimate revisions of late, reflecting that analysts are not very optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for current-year earnings has decreased 1.4% over the past 30 days. Thus, the stock currently carries a Zacks Rank #4 (Sell).
Its price performance also does not seem very impressive. Shares have lost 7.4% over the past six months compared with 2.1% decline of the industry.
Looking at fundamentals, over the last five years (2014-2018), non-interest expenses have increased at a CAGR of 7.6% mainly due to rise in compensation and employee benefit costs. Given the increase in headcount and investments in technology to improve non-interest income, the company’s costs are likely to remain elevated, thereby hurting bottom-line growth to an extent.
Moreover, East West Bancorp has considerable exposure to risky loans. High level of commercial real estate loans will likely put it in a tight spot. While the housing sector is rebounding, any deterioration in the real estate prices will weigh on the company’s financials.
Further, East West Bancorp’s asset quality has been deteriorating over the past few years. While provision for credit losses declined year over year in 2015, the same saw a CAGR of 52.9% over the past three years (2016-2018). Also, management expects provisions in 2019 to be $80-$90 million, up from $64 million recorded in 2018.
Stocks to Consider
Some better-ranked stocks from the finance space are Cohen & Steers, Inc. CNS, BlackRock, Inc. BLK and Franklin Resources, Inc. BEN. All these stocks currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Over the past 60 days, Cohen & Steers witnessed an upward earnings estimate revision of 6.9% for 2019. Its share price has risen 40.3% over the past six months.
The Zacks Consensus Estimate for BlackRock’s current-year earnings has been revised 5.7% upward over the past 60 days. Its share price has increased 7.5% over the past six months.
Franklin Resources has witnessed an upward earnings estimate revision of 8.9% for fiscal 2019 over the past 60 days. Its share price has improved 3.3% over the past six months.
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East West Bancorp, Inc. (EWBC): Free Stock Analysis Report
BlackRock, Inc. (BLK): Free Stock Analysis Report
Cohen & Steers Inc (CNS): Free Stock Analysis Report
Franklin Resources, Inc. (BEN): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.