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Analysts Are Bullish on Diversified Financial Services Stocks

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Analysts’ recommendations

285 analysts cover the 15 stocks in the diversified financial services sub-group. Of these, there are 162 “buy” ratings assigned, 15 “sell” ratings assigned, and 108 “hold” ratings assigned. With more than 50% “buy” ratings, analysts are upbeat on the sector.

Wall Street (SPY) analysts are the most bullish about Discover Financial Services (DFS), as it has received “buy” ratings from 25 analysts among the 30 that are covering the stock. The stock has received no “sell” ratings and has been rated as a “hold” by five analysts.

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In contrast, analysts are the most negative about the performance of American Express (AXP), as the stock has received the highest number of “sell” ratings. Out of the 34 analysts covering the stock, six believe the stock should be sold. However, Franklin Resources has received the least number of “buy” ratings from analysts. Of the 19 analysts covering the stock, one has rated it as a “buy,” three have rated it as a “sell,” and 15 have rated it as a “hold.”

Valuations

Diversified financial services companies are trading at an average trailing-12-month price-to-earnings (or PE) multiple of 12.6x and a one-year forward PE multiple of 11.3x.

Navient Group (NAVI) is the most undervalued stock, with a one-year forward PE multiple of 4.8x, while CME Group is the most overvalued, with a one-year forward PE multiple of 19x. Navient is down ~17% year-to-date, while Schwab Group has lost 2.3% in 2016 so far.

Relative strength index

On average, the diversified financial services sub-group has a 14-day relative strength index (or RSI) of 39. NASDAQ and CME Group, with RSIs of 53 and 52, respectively, are the furthest from oversold territory.

Meanwhile, Legg Mason (LM) and American Express, with RSIs of 22 and 26, respectively, are oversold.

The RSI is a technical momentum indicator used to determine overbought or oversold conditions. An asset is deemed to be overbought once the RSI approaches 70, meaning that it may be overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it’s an indication that an asset may be oversold and is likely to become undervalued.

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