Shares of Deutsche Bank (DB), a $48 billion global investment bank headquartered in Germany, are down 33.60% from the January 15 high of $53.15. This compares to the Financial Select Sector SPDR Fund ETF’s (XLF) year to date gain of 7.65% and the iShares MSCI Germany ETF’s (EWG) year- to-date loss of 6.42%.
Valuation
The reason for the underperformance in 2014 is due to the litany of legal problems the bank has faced. Deutsche Bank now trades at a P/E ratio of 10.60x (2015 estimates) with 48% EPS growth (-32.8% this year), price to sales ratio of 1.27x, and a price to book ratio of 0.54x. Revenue growth is expected to go from -2.5% this year to +3.2% in 2015. The average analyst price target is just $32.50 (3 sell ratings, 8 hold ratings, 3 buy ratings). On July 9, JPMorgan Chase upgraded the stock to overweight from neutral.
Unusual Options Activity
5,000+ Sep $34 calls were purchased for $1.35 each compared to the open interest of 1,370 contracts at the time on September 10. The call to put ratio was 8:1. Call activity was nearly 4 times the average daily volume. Implied volatility rose 5.5% to 25.17. On September 5th, 5,000 Jan 2015 $35 calls were bought for $2.20-$2.30 each. Open interest was just 893 contracts at the time.
Bullish Setup On The Weekly Chart
Deutsche Bank Options Trade Idea
Buy the Jan 2015 $35 call for $2.30 or better
Stop loss- None
First upside target- $4.50
Second upside target- $7.50
Disclosure: I’m long shares of the stock and may look to buy the Jan 2015 $35 calls soon.
Mitchell’s Smart Money Report for unusual options activity featuring Zions Bancorporation (ZION)
