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UBS Group Displays Prudent Cost Management: Should You Hold?

Zacks Equity Research

UBS Group AG’s UBS focus on building capital levels and undertaking cost-saving initiatives seems impressive. Also, it continues to execute restructuring initiatives to free resources and invest in profitable areas. However, it remains under pressure due to persistent negative interest rates and strict regulations in the domestic economy.

The company engages in efficiency programs that seek to free up resources, enabling it to make investments to support growth and service clients better. Notably, the company expects adjusted Group cost/income ratio to be above 72% by 2021.

Further, it remains focused on improving cost efficiency, which is positive for the long-term success of the company. Through these efforts, UBS Group achieved net cost reductions of CHF 25 million by 2018-end. Notably, it remains on track to achieve the cumulative $600 million gross cost saving through 2021.

Backed by these positives, the company was able to impress analysts regarding its earnings growth potential, as reflected in 2.5% upward estimate revision of the Zacks Consensus Estimate for current-year earnings over the past 30 days. The stock currently carries a Zacks Rank #3 (Hold).

Nevertheless, UBS Group’s net interest income remains under pressure owing to the negative interest rate environment in the domestic economy. Also, appreciation of the Swiss franc against other currencies is likely to hurt earnings, as a significant part of the company’s operating income is denominated in non-Swiss franc currencies.

Further, the company’s capital deployment activities seem unsustainable as its debt-to-equity ratio compares unfavorably with that of the industry.

Shares of UBS Group have lost 21.5% over the past six months compared with 13.2% fall of the industry.

Key Picks

Banco Santander Brasil SA BSBR shares have rallied 4.5% over the past three months. Also, the company’s earnings estimates for the current year have been stable over the past 30 days. The stock carries a Zacks Rank of 2 (Buy), at present.

BanColombia S.A. CIB share price has increased 8.3% in three months’ time. Further, the company’s earnings estimates for the ongoing year have moved 2.7% north in the past 30 days. The stock carries a Zacks Rank of 2, currently.

Washington Federal, Inc. WAFD shares have gained 5.1% in the past three months. In addition, this Zacks Rank #2 company’s earnings estimates for 2019 have moved up 1.6% in 30 days’ time.

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