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Why Is UBS (UBS) Up 14.2% Since Last Earnings Report?

It has been about a month since the last earnings report for UBS (UBS). Shares have added about 14.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is UBS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

UBS Group AG Q3 Earnings Decline Y/Y on Lower Revenues, Costs Dip

UBS Group AG reported third-quarter 2022 net profit attributable to shareholders of $1.73 billion, down 37.6% from the prior-year quarter.

The company’s performance was affected by a fall in revenues and a decline in total net credit loss releases. Nonetheless, operating expenses decreased from the prior-year quarter.

Performances of Asset Management, Global Wealth Management, Personal & Corporate Banking and Investment Bank divisions were disappointing in the quarter.

Total Revenues & Expenses Down

UBS Group AG’s total revenues decreased 9.6% to $8.24 billion from the prior-year quarter.

Operating expenses decreased 5.6% to $5.91 billion in the third quarter. The decrease was largely due to a decline in personnel expenses.

UBS Group AG reported a total net credit loss release of $3 million in the quarter compared with $14 million witnessed in the year-ago quarter.

Business Divisions’ Performance

Global Wealth Management’s third-quarter operating profit before tax was $1.43 billion, down 4% year over year. The decline was due to a fall in transaction-based income and recurring net fee income.

Asset Management’s operating profit declined 34% to $140 million in the third quarter of 2022. The fall was mainly due to a decline in total revenues.

Personal & Corporate Banking reported an operating profit before tax of $442 million, down 8% year over year. The decrease was mainly due to a decline in revenues.

The Investment Bank unit’s operating profit before tax was $447 million, down 47% from the prior-year quarter’s $837 million mainly on a decline in total revenues in the global banking business arm.

Group Functions incurred an operating loss before tax of $158 million in the reported quarter compared with a loss of $180 million in the year-ago quarter.

Capital Position Deteriorates

The total assets decreased marginally to $1.11 trillion from the previous quarter. CET1 capital declined marginally to $44.66 billion. As of Sep 30, 2022, UBS Group AG's invested assets declined 5.3% to $3.7 trillion from the prior quarter. Also, UBS Group AG’s return on CET1 capital was 14.4% as of Sep 30, 2022, compared with 14.9% as of Sep 30, 2021.

Nonetheless, risk-weighted assets declined 1.6% to $310.6 billion from the prior quarter.

Capital Deployment Activities Encouraging

In the quarter, the company repurchased $1.02 billion of common stock under its 2022 share repurchase program.

Outlook

Management expects around $200 million of incremental NII in the fourth quarter compared with the third quarter. With this, 2022 NII is expected to rise by $1 billion. Costs, excluding litigation and FX expenses, are estimated to increase by around 1% year over year in 2022.

A cost/income ratio of 70-73% is expected for 2022. A CET1 ratio of 13% is expected for 2022. Management projects a 15-18% return on CET1 capital in 2022. CET1 leverage ratio is anticipated to be more than 3.7% in 2022.

Profit before tax in the Global Wealth Management business is anticipated to grow 10-15% over the cycle.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, UBS has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, UBS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

UBS is part of the Zacks Banks - Foreign industry. Over the past month, HDFC Bank (HDB), a stock from the same industry, has gained 11.9%. The company reported its results for the quarter ended September 2022 more than a month ago.

HDFC Bank reported revenues of $3.87 billion in the last reported quarter, representing a year-over-year change of +6.1%. EPS of $0.75 for the same period compares with $0.66 a year ago.

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