KBW shuffles bank-stock ratings as stock price beatdown upends sector ahead of earnings

By Steve Gelsi

After a wild ride in bank stocks, KBW upgrades Fifth Third, Huntington Bancshares, Popular and Columbia Banking System but cuts view on PNC and Atlantic Union Bankshares

KBW on Thursday upgraded four bank stocks and cut its view on two as it surveys the effects of a brutal selloff in recent weeks after the collapse of Silicon Valley Bank and ahead of first-quarter earnings updates starting Friday, April 14.

Meanwhile, bank stocks were lifted Thursday by comments from St. Louis Federal Reserve President James Bullard about reduced stress in the financial system in recent days.

The KBW Nasdaq Bank Index rose 1.2% on Thursday, but it's still down about 20% so far in 2023, compared with a 6.2% increase in the S&P 500 and a 14% jump in the Nasdaq .

KBW said it expects bank stocks to be affected by relative balance-sheet performance on deposits, liquidity and capital as key factors as looks toward first-quarter results.

KBW cut its median 2023 earnings estimates for banks by 8% and reduced its 2025 collective earnings view by 11%.

"KBW's most recent look at industry deposit data points to stabilization in small bank deposits," analysts said. "But deposits and liquidity levels will be area of focus in earnings reports."

KBW said it's recommending overweight position in Western Alliance Bancorp (WAL), First Citizens Bancshares Inc. (FCNCA), Cadence Bank (CADE), Metropolitan Bank Holding Corp. (MCB) and The Bancorp Inc. (TBBK).

It's also recommending a "pair trade" of overweight U.S. Bancorp (USB) and underweight PNC Financial Services Group Inc. (PNC).

Against this backdrop, KBW downgraded PNC to underperform from market perform and shaved its price target to $125 a share from $157.

KBW said PNC's stock is trading at a "outsized premium valuation" while offering lower earnings visibility.

"Although we consider PNC a high-quality super-regional bank, we believe the current 27% premium to the group is stretched (10% historically) given expectations of lower-than-peer returns and a higher enhanced loan-to-deposit ratio vs. peers," KBW said.

KBW also cut its rating on Atlantic Union Bankshares Corp. (AUB) to market perform from outperform and cut its price target to $36 a share from $42.

"Given the risk for downward revisions in guidance at [Atlantic Union], and in light of its outperformance and premium valuation, we believe a neutral rating is more appropriate at this time," KBW said.

Shares of PNC rose 1.5% on Thursday. Atlantic Union Bankshares fell 1%.

On the plus side, KBW upgraded Fifth Third Bancorp's (FITB) stock to outperform from market perform, while trimming its price target to $34 a share from $38.

The ratings change reflects the stock's current discounted valuation, against KBW's expectation that Fifth Third will generate better returns than its peers.

"The primary risks that could affect our earnings outlook and price target include an unexpected increase in credit costs, reduced loan demand, and margin pressure," KBW said.

KBW also upgraded Huntington Bancshares Inc. (HBAN) to market perform from underperform.

Analysts said recent stock underperformance has brought Huntington's valuation more in line with the peer group and expectations.

Like Fifth Third, the primary risks facing Huntington Bancshares include unexpected increase in credit costs, reduced loan demand and margin pressure, KBW said.

Fifth Third stock rose 2.5%, while Huntington Bancshares rose 1.8%.

KBW also upgraded Popular Inc. (BPOP) to outperform from market perform and hiked its view of Columbia Banking System Inc. (COLB) to outperform from market perform.

Columbia Banking System's stock is rallying by 6.2%, while Popular Inc.'s stock is rising by 3.5%.

Also read: Bank stocks end tough quarter with gains as sector stabilizes despite outflows from savings accounts

-Steve Gelsi

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

04-06-23 1121ET

Copyright (c) 2023 Dow Jones & Company, Inc.