Analyst Says Things Could Get Worse For Deutsche Bank's Stock

Deutsche Bank AG (USA) DB stock is down nearly 40 percent year-to-date, but one analyst says things are going to get much worse for Deutsche Bank investors before they get better.

The Analyst

Bank of America analysts led by Andrew Stimpson downgraded Deutsche Bank from Neutral to Underperform and lowered his price target from 11 EUR ($12.54) to 9 EUR ($10.42).

The Thesis

There are simply too many headwinds for Deutsche Bank to overcome at the moment, Stimpson said in the note.

First, Stimpson said Deutsche Bank’s deleveraging process will hinder its revenue growth. He also said the bank will need more aggressive cuts than it's currently projecting to achieve its target of 4.5 percent medium-term leverage target.

In addition, Bank of America dialed back its 2018/2019/2020 EPS projections from EUR 0.71/0.98/1.40 to EUR 0.39/0.71/1.07. The new estimates are roughly 10 percent below consensus forecasts, suggesting additional earnings misses and downward estimate revisions in the future.

Finally, with Deutsche Bank’s profitability much lower than its peer group, Stimpson says investors can’t count on valuation providing support for the stock.

“After the significant rally from the lows, DBK’s 12m fwd P/E is near to post crisis highs,” Stimpson said.

Stimson said there are plenty of better and lower-risk bank stocks out there at the moment, and Deutsche Bank’s struggles will likely continue to weigh on the stock price.

Price Action

Deutsche Bank stock traded lower by 2.4 percent to $11.54 following the downgrade.

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Photo credit: Markus Bernet, from Wikimedia Commons