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Bull of the Day: East West Bancorp (EWBC)

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East West Bancorp (EWBC - Free Report) is a Zacks Rank #1 (Strong Buy) that provides a range of personal and commercial banking services to businesses and individuals.The company accepts various deposit products, such as personal and business checking and savings accounts, money market, and time deposits. 

While the company provides traditional banking services, it has a niche as an ethnic-Chinese commercial bank that allow clients a financial bridge to facilitate business transactions between the U.S. and China.

The stock shot higher in August after earnings beat. However, like the overall market, EWBC ran into resistance and sold off. Now 10% lower, investors should start looking at the name to see if its right for their portfolio.

About the Company

East West Bancorp was founded in 1998 and is headquartered in Pasadena, CA. It employs 3,000 people and has a market cap of almost $10 Billion.

The company operates approximately 120 locations in the United States and China; full-service branches in Hong Kong, Shanghai, Shantou, and Shenzhen; and representative offices in Beijing, Chongqing, Guangzhou, Taipei, and Xiamen.

East West operates through three segments: Consumer and Business Banking, Commercial Banking, and Other. The company offers all the traditional services a normal bank would, but also provides various wealth management, treasury management, foreign exchange, and interest rate and commodity risk hedging services.

EWBC has a Zacks Style Score of “B” in Momentum, “C” in Value and “D” in Growth. The stock sports a Forward PE of only 9 and pays 2.3% dividend.

Q2 Earnings Beat

In late July the company posted an 8% EPS beat, driven by record assets and record loans. This was their second straight beat, which comes two quarters after their first earnings miss since 2020.

Q2 came in at $1.81 v the $1.68 expected. Revenues were at $551M, above the $522M expected. Net Interest Margin (NIM) came in at 3.23% v the 2.87% last quarter. East West saw growth across all major loan categories and noninterest-bearing demand deposits increased 8%.

Management commented that the balance sheet is positioned for higher interest rates, but also very diversified.

The company guided FY net interest income growth at 30-35% and loans +16-18%.

Analyst Estimates

Over the last 60 days, estimates have been trending higher. For the current quarter, we have seen numbers taken from $1.81 to $2.08 or 15%. For next quarter, they have ticked 13% higher.

Looking down the road, analysts see the momentum continuing. Over the last 90days, the current year has seen estimates go from $7.01 to $7.79, or 11%. For next year, analysts have taken numbers 8% higher.

The Technicals

All-time highs where trading earlier this year above the $93 level. But the equity market sell-off and tensions between the United States and China brought the stock lower by 35%.

The stock rallied over 25% from lows and is currently coming back to some support levels.

The 50-day moving average is just above $70 and buyers seem interested. However, the 61.8% Fibonacci retracement drawn from June lows to August highs is $68. This area already brought in buyers and if it continues to hold, the stock could see a rally back to that 200-day moving average and beyond.

Bottom Line

East West Bancorp has a niche not many banks have, with the opportunity to get a share the finance industry in China. While there is current risk with this idea, the company is well diversified to weather the current storm.

The stock is currently discounted because of the current atmosphere and if global geopolitical risk were to subsided, investors will be rewarded.

Short-term investors have a nice trade setup at current levels as they look for a move back to the 200-day moving average above, with a stop at recent lows. Long-term investors have an even greater opportunity to add a non-traditional bank to their portfolio, while getting exposure to the Chinese market.

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