Deutsche Bank Ests Lowered
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.
Acxiom Negatives Priced In
Acxiom Corporation (ACXM) reported Q1:FY09 revenues of $331 million, down 1.1% from a year ago and down 5.4% sequentially, but roughly in line with our estimate of $332 million.
ACXM has suffered a significant slowdown in the key financial services vertical in the past few months due to cutbacks in the volume of marketing by credit card companies. As a result of the increasingly uncertain environment, we have limited confidence in our revised estimates and highlight a growing risk that the relatively stable and predictable portion of Acxiom's revenue may be facing in the face of continued deterioration of the financial services vertical.
Despite this uncertainty, there is a significant opportunity for Acxiom's new management to use this situation to catalyze change that is desperately needed and long overdue. It appears that cost reduction activities are proving effective with consolidated operating margin improving 130bps yr/yr in Q1:FY09 despite a slight revenue decline.
