UBS AG (NYSE: UBS) – Q1 FY 2011 Earnings Preview
Monday, April 25, 2011 7:49 PM

UBS AG (NYSE: UBS), the second largest wealth manager in the world, is expected to report its first quarter FY 2011 earnings on April 26, 2011. In the last four quarters, the company's reported EPS exceeded analysts' consensus estimates in the first three quarters by margins of 31 percent, 113.60 percent and 27.30 percent, respectively. For the quarter ended December 2010, the reported EPS missed analysts' consensus estimate by margin of 2.80 percent.

For the first quarter, analysts' EPS estimates are $0.49 per share, compared with a consensus estimate of $0.49 per share to $0.55 per share in the year ago quarter. For this quarter, analysts' consensus revenue estimate stands at $8.03 billion. For the quarter ended March, 2011, the consensus EPS forecast has been increased from $0.46 per share estimated 30 days ago, to the current estimate of $0.49 per share.

In the last 52 weeks, UBS stock has been trading in the range of $12.26 and $20.08. The last trading price of UBS stock was $18.71 on April 13, 2011. During the first quarter of the current fiscal year, analysts at Canaccord Genuity upgraded stock rating to hold from sell.

UBS AG is one of the world's leading financial firms. UBS is also the world's second largest wealth manager, and a significant investment banking and securities firm.

In the quarter ended December 2010, UBS reported net profit attributable to UBS shareholders of CHF 1.29 billion ($1.44 billion) compared with CHF 1.66 billion ($1.85 billion) in the third quarter. For full year 2010, UBS reported net profit attributable to UBS shareholders was CHF 7.16 billion ($8 billion) compared with a net loss of CHF 2.73 billion ($3.05 billion). This increase was primarily due to an improvement in trading income, a reduction in credit loss expense, and goodwill impairment charges in 2009. Total operating income for the year was CHF 31.99 billion ($35.76 billion), up 42 percent compared with operating income of CHF22.60 billion ($25.26 billion).

Swiss law limits UBS's ability to hold or repurchase its own shares. UBS and its subsidiaries may only repurchase shares if they have sufficient free reserves to pay the purchase price and if the aggregate nominal value of the shares does not exceed 10 percent of its nominal share capital. During FY 2010, UBS paid dividends for preferred securities totaled $2.34 billion.

In a regular update on its first quarter expectations, UBS expects some improvement in the investment bank's trading results compared with the two prior quarters, but this will as always largely depend upon market conditions and the volume of business that its customers transact with UBS. The company does not expect the investments made on certain securities to bear any positive results during the first quarter. For the quarter, the company does not expect its investment banking department to match its seasonally strong fourth quarter result, at least not in its advisory business.

In the foreign money center banks industry, UBS faces stiff competition from companies such as Citigroup (NYSE: C) and Credit Suisse Group (NYSE: CS). In the last one year, Citigroup had reported EPS of $0.35 per share on revenue of $61.41 billion, while Credit Suisse reported EPS of $4.29 per share on revenue of $34.70 billion, with quarterly revenue growth of 7.90 percent. On the other hand, UBS EPS was $2.16 per share on revenues of $35.27 billion, with quarterly revenue growth of 23.40 percent.

UBS has a total market capitalization of $70.95 billion. In comparison to the industry, UBS has a P/E ratio of 8.65, lower than the industry's average P/E of 9.14. The P/S and the P/B ratio of the company is at 2.01 and 1.36, respectively, compared with the industry's P/S ratio of 2.38 and 2.20, respectively. The net profit margin of the industry is 10.40 percent, much lower than the company's net profit margin of 23.29 percent. The ROE of the company is 15.60, while the industry's ROE is at 10.60.



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