Despite facing a series of challenges this year, banks are now emerging as a potentially lucrative investment option. Citigroup analysts have recently expressed a generally positive stance on several regional banks, highlighting that much of the negative news surrounding the sector has already been factored into their stock prices.
For the past two years, Wall Street has been forecasting an economic slowdown, causing investors to stay away from bank stocks due to concerns about an imminent wave of defaults. While delinquencies have seen a slight increase from their pandemic lows, they still remain comparatively low when analyzed from a historical perspective. Moreover, certain segments of Wall Street are confident that banks possess the necessary tools to navigate through any potential difficulties.
Citigroup analyst Keith Horowitz states, “We believe now is the opportune time to buy regional banks.” He further explains that traditionally, investors are advised against purchasing bank stocks too early in anticipation of rising credit costs. However, in the current market scenario, Horowitz asserts that now presents an extremely attractive entry point for investors.
When assessing the average cost of equity for the banks covered by Horowitz, it stands at 12.6%, which aligns with the later stages of credit cycles. While it is true that banks are grappling with weakening credit conditions, the analyst suggests that prevailing market sentiment is excessively pessimistic. Horowitz emphasizes, “We see a tailwind to the sector as fears over credit play out largely unrealized.”
In conclusion, despite undergoing significant challenges, banks are now being viewed as an appealing investment opportunity. With concerns over credit conditions potentially overblown, investing in regional banks at this juncture seems particularly enticing.
Huntington Bancshares: A Positive Outlook
Horowitz, a banking analyst, has recently initiated coverage on four banks. Among these, Huntington Bancshares (ticker: HBAN) has captured his attention, as he awards a Buy rating to the stock. In his analysis, he predicts a potential 15% increase in the share price, expecting it to reach $12 per share.
One key factor contributing to Horowitz’s optimism is Huntington’s net interest income. He foresees significant growth in this area by 2025, primarily due to the bank’s strategic asset repricing and effective hedging against higher-for-longer interest rates.
Zions Bancorp: A Promising Opportunity
Another bank that Horowitz feels particularly positive about is Zions Bancorp (ticker: ZION). He believes that the stock has been undervalued since the collapse of Silicon Valley Bank. However, he believes that net interest income has already stabilized after recent downward revisions. As Zions further improves its funding mix and reviews its fixed assets, Horowitz anticipates the potential for a 17% increase in the share price, targeting $42.
First Citizens Bank and New York Community Bancorp: A Neutral Perspective
In contrast, Horowitz holds a more neutral viewpoint on First Citizens Bank (ticker: FCNCA) and New York Community Bancorp (ticker: NYCB). Although both banks have performed well this year, their acquisitions of Silicon Valley Bank and Signature Bank have already been factored into their stock prices. Therefore, Horowitz assigns them a Neutral rating.
It is important to note that neither of these ratings implies a negative outlook for the two banks. Instead, Horowitz suggests that their potential for further growth may be limited by the already favorable terms of their acquisitions.
In conclusion, Horowitz’s coverage on these four banks presents a varied picture. While Huntington Bancshares and Zions Bancorp demonstrate promising potential, First Citizens Bank and New York Community Bancorp may have already reached their peak. Investors should carefully consider these assessments when making decisions regarding their portfolios.