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Raymond James upgrades Texas Capital, PacWest; lowers Prosperity, Signature Bank


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Raymond James upgrades Texas Capital, PacWest; lowers Prosperity, Signature Bank


* Stephens Inc. analyst Erik Zwick initiated coverage of Valley National Bancorp at "equal-weight."

Zwick noted that the company has historically generated above-peer levels of profitability and efficiency. In the past five or six years, however, the company has "taken a few steps back," he wrote.

The company is currently working on several initiatives to start generating higher operating fundamentals again, the analyst noted. These initiatives include reorganizing the management team and increasing branch efficiency. Another initiative deals with the company's repositioning of its residential mortgage line to focus more on "purchase and home equity originations versus the previous refi-driven model." Zwick added that since the financial targets from one of these initiatives is uncertain at the moment, he has decided to stay on the sidelines.

* Zwick initiated coverage of Sterling Bancorp at "overweight" with a 12-month price target of $30.

The analyst noted that the company has successfully improved its earnings and profitability. In addition, the company's pending deal with Astoria Financial Corp. is expected to generate 9% EPS accretion in 2018 and 12% tangible book value accretion. Still, the company has been trading in line with its peers since the deal announcement. The analyst wrote that the stock performance might reflect that investors are waiting for the deal's approval. Zwick wrote that the company will be able to successfully complete and integrate the deal, making the company's current valuation attractive based on his 2018 earnings outlook.

* Zwick also initiated coverage of New York Community Bancorp Inc. at "equal-weight" and deemed it the "best example of the follies of asset-based regulation."

The analyst noted the company has been able to manage assets below $50 billion for years. This has resulted in lower profitability, liquidity concerns, and uncertainty related to its M&A growth strategy, he wrote. If the company crosses the $50 billion threshold, he wrote, it will be a driver for higher stock performance. The timing of such an event, however, is uncertain, he wrote.

The analyst wrote that the company's current valuation was appropriate given its "structural headwinds and limited organic growth ability."

* Raymond James analyst Michael Rose initiated coverage of Cullen/Frost Bankers Inc. with a "market perform" rating.

The analyst noted that the company is trading at a premium based on EPS and tangible book value after outperforming in 2016. In addition, the analyst sees less upside for the company to benefit from potential corporate tax reform compared to its peers. He wrote that the company has a balanced risk-reward, though he added that he views the company's "fundamental story positively."

Industry note

* Raymond James analysts upgraded Texas Capital Bancshares Inc. and PacWest Bancorp to "strong buy" from "outperform." They downgraded Prosperity Bancshares Inc. to "market perform" from "outperform" and downgraded Signature Bank to "outperform" from "strong buy."

The analysts have a positive outlook on Texas Capital Bancshares, based on the pull back in the company's share price since mid-March and their confidence in above-consensus EPS estimates.

The analysts upgraded PacWest based on increasing investor interest in deposit franchises. In addition, the analysts are bullish on the stock because of a potential EPS upside from venture capital and private equity activity, share buybacks, and expense rationalization.

In the case of Prosperity Bancshares, the analysts think that the shares are fairly valued at the moment and they are not expecting any drivers to improve the company's stock performance from the current levels.

The analysts lowered Signature Bank's price target to $167 from $183. They think that uncertainty related to the company's New York-based taxi medallion loan portfolio might continue longer than expected.