Banks have been beaten up so much this year that they’re starting to look attractive to investors.
Citigroup analysts initiated generally bullish coverage of several regional banks on Friday, arguing that much of the sector’s bad news is already baked into their stock prices.
Wall Street has been predicting an economic slowdown for two years, and traders have been shying away from bank stocks in anticipation of a wave of defaults. While delinquencies have been creeping up from their pandemic lows, they are still low by historical standards, and pockets of Wall Street are confident banks are equipped to deal with whatever may come.
“We believe now is the opportune time to buy regional banks,” wrote Citi analyst Keith Horowitz. “The historical playbook is you don’t want to be early buying the banks before credit costs pick up, but we believe now is a very attractive entry point.”
The average cost of equity for banks in Horowitz’s coverage universe is 12.6%, which is consistent with late credit cycles. But while banks are also contending with weakening credit conditions, the analyst says there is too much fear priced in. “We see [a] tailwind to the sector as fears over credit play out largely unrealized,” he wrote.
Of the four banks he just initiated coverage on, Horowitz is most bullish on
(ticker: HBAN) and
(ZION), awarding Buy ratings to both. On Huntington, Horowitz sees shares climbing 15% to $12 apiece. He is more bullish on the bank’s net interest income in 2025 as the bank will benefit from repricing assets then and from hedging its portfolio to deal with higher-for-longer interest rates.
With respect to Zions, Horowitz says shares have been too beaten up since the collapse of Silicon Valley Bank. After downward revisions to net interest income in recent quarters, he believes it has already stabilized and is in a position to grow thanks to the bank improving its funding mix and fixed-asset repricing. That could translate to shares climbing 17% to Horowitz’s price target of $42.
Horowitz is less optimistic about the prospects of
First Citizens Bank
New York Community Bancorp
(NYCB), initiating coverage on both with a Neutral rating. They are two of the better-performing banks this year after acquiring the failed Silicon Valley Bank and Signature Bank, respectively, from the government at attractive terms. While the acquisitions appear to be good for both banks, much of the upside is already baked in to their shares, he wrote.
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