We are continuing our Hold on Deutsche Bank AG (DB). DB posted second quarter earnings before nonrecurring items of 418 million, down 75% from the year-ago quarter, but up sequentially from a 985 million loss in the first quarter.
This was below our estimate, as results reflected 2.3 billion in asset markdowns at the Corporate and Investment Bank. Most other segments performed reasonably well despite poor market conditions. In addition, DB cut costs significantly and further reduced risk exposures. We are lowering our EPADS [earnings per American Depositary Receipt] estimates to $5.00 from $8.00 for 2008 and to $11.90 from $14.15 for 2009.
Though DB's results should be bolstered by improved efficiencies and acquisitions, headwinds include continued problems stemming from dislocations in the US subprime mortgage and other credit markets.
Deutsche Bank is trading at 7.0X the consensus 2009 earnings per share estimate, below the 8.2X median P/E ratio for the industry, based on 2009 consensus estimates. While DB's expected growth rate of 9% is below the median for the industry, DB's dividend yield of 7.6% provides an above-industry median return. Despite this, we believe the market penalizes DB for its above-average reliance on more volatile trading results, which are contributing a relatively large proportion of revenue and earnings.
We think the shares are appropriately valued at present. Our $100 price target equates to roughly 8 ¼X our $11.90 EPADS estimate for 2009, providing a PEG ratio (P/E divided by estimated future growth rate) of 0.9X, approximately in line with the industry median.
Read the full analyst report on DB
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