“Decent and in many cases double-digit earnings growth, high and increasing cash returns and excess capital offering strategic flexibility are other positive elements in the investment case,” UBS analysts wrote in an equity report April 7. “High profit growth levels and high cash yields in a low-yield environment remain highly attractive features.”

Thomson Reuters forecasts Credit Suisse’s earnings per share will grow 5.4 percent year over year in 2015 to $2.50 a share. Earnings for 2016 are expected to rise 6 percent to $2.65 a share. 2017 earnings per share is projected to reach $3.30, up 25 perent year over year.

The 30% jump in the Swiss franc in January resulted in a 3 percent hit to the bottom line -- not nearly as much as some analysts speculated. Many feared Credit Suisse would have to its dividend, but it’s maintaining a 3.3 percent annual payout.

Valuations
CS has strong upside potential in the coming years. It trades at a discount to both its peers and the European stock market. It trades at a forward price-to-earnings ratio of 11. iShares MSCI Europe Financials ETF (EUFN) trades a higher forward P/E of nearly 13 while Vanguard FTSE Europe ETF (VGK) trades at 17 times forward earnings.

CS trades below book value at 0.9 times book and 1.6 times sales. EUFN trades at slightly cheaper valuations on these measures with a P/B of 0.99 and P/S of 1.2. VGK sports a P/B of 1.8 and P/S of 1.2.

Investment Risks
Credit Suisse paid a total of $3.7 billion to settle charges on selling bad mortgages to Fannie Mae and Freddie Mac. New York State is suing it for $10 billion for selling toxic mortgage-backed securities before the 2008 crisis. The biggest risk to Credit Suisse lies in its case against New York State. Although the stock has priced in much of the costs, an unfavorable decision could cripple it further.

Credit Suisse gets more than half of its revenue from investment banking in which profits are very volatile. It, like many of its peers, had massive legal and settlement expenses stemming from the financial crisis. In May 2014, it settled charges for helping U.S. clients evade taxes for CHF 2.5 billion. Regulators could require banks to hold more capital or enact new regulations that hurts profits.

“This investment bank is a double-edge sword,” Erin Davis, senior equity analyst at Morningstar, wrote in a client note Jan. 23. “Higher capital requirements have made investment banking a less attractive business than it was before the crisis, yet employee compensation remains sky-high, so there isn't much left to distribute to shareholders.”

The Volcker Rule, which restricts banks from making some types of speculative investments, will likely reduce Credit Suisse’s proprietary trading revenue.

Philip J. DeAngelo, is the owner and managing director of Focused Wealth Management, an SEC registered investment advisor, with $420 million in assets under management in Highland, N.Y.

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