Banking & Finance

5 Mid-Cap Regional Banks Undervalued by 20% or More

First Republic Bank (NYSE: FRC) was started as Outperform with a $121 price target, more than 20% higher than the $99.10 closing price. The consensus target price is $100.95. Wedbush likes the top notch client service as a winning strategy. First Republic targets affluent cities: San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland, Boston, New York City, Greenwich and Palm Beach. It also has the highest price-to-book ratio of the group here at almost 2.5 times book value. Wedbush said:

We view First Republic Bank’s business model as the gold standard in banking given its success in wooing the highly desirable affluent client base, which generates not only core spread income, but also wealth management fees. The company is one of the fastest-growing large banks in the nation with loans and deposits growing six fold over the past 10 years, and more recently, increased EPS and revenue north of 20% in 2016. We expect First Republic Bank’s consistent approach and proven value proposition to deliver continued strong growth through 2017/2018.

Signature Bank (NASDAQ: SBNY) also was given an Outperform rating and it was assigned a $165 price target, up about 21% from the $136.06 share price. That target is actually under the consensus target price of $167.32, and Signature Bank has a $7.6 billion market cap and is valued at almost twice book value per share. Wedbush sees strong growth leading to higher valuations ahead, and the firm said this:

We view Signature Bank’s business model of supplementing its core banking franchise with the hiring of seasoned banking teams from competitors as a successful recipe for continued growth. Signature has been an impressive organic growth story since its IPO with assets growing over 11-fold since 2004 to $40 billion, and it continues to generate above-average loan and deposit growth. Although we acknowledge the challenges the company faces with a liability sensitive balance sheet, intense competition in the multifamily market, and regulatory scrutiny surrounding its CRE exposure, we believe Signature Bank presents a compelling investment opportunity given its above-average loan and deposit growth while it trades at a discount to peers.

Wintrust Financial Corp. (NASDAQ: WTFC) was given an Outperform rating, and its $89 price target was over 21% higher than the $73.15 prior close. The consensus target price for Wintrust is $76.59, and its market cap is $4.1 billion. Wintrust is valued at about 1.5 times its book value per share. The firm said that its community banking model is driving solid growth at the bank. Wedbush’s report said:

Our Outperform rating is based on Wintrust ’s strong organic loan and deposit growth relative to peers, its highly asset sensitive balance sheet, and its strength in generating fee income which represents 31% of revenue vs. midcap peers at 16%. The company’s two-year CAGR for loans and deposits is 11.6% and 10.7%, respectively, compared to our midcap peer group of 10.4% and 8.4%. We expect growth to remain above the industry average particularly as WTFC implements as yet undisclosed growth initiatives in the second half of 2017.

Wedbush’s other new regional and mid-cap bank ratings were shown below, and even their Neutral ratings generally had between 5% and 10% upside to the price targets compared with the stated share prices in Wedbush’s report. These were shown as follows:

  • BankUnited (NYSE: BKU), $35 target
  • Cathay General Bancorp (NASDAQ: CATY), $39 target
  • CVB Financial Corp. (NASDAQ: CVBF), $22 target
  • Hope Bancorp Inc. (NASDAQ: HOPE), $20 target
  • MB Financial Inc. (NASDAQ: MBFI), $48 target
  • PacWest Bancorp (NASDAQ: PACW), $49 target
  • SVB Financial Group (NASDAQ: SIVB), $192 target
  • Umpqua Holdings Corp. (NASDAQ: UMPQ), $20 target
  • Valley National Bancorp (NYSE: VLY), $12 target

TCF Financial Corp. (NYSE: TCF) had the sole Underperform rating, and the $14 price target was under the last shown price of $14.99. Wedbush’s analyst report on TCF warned:

Our Underperform rating is based on TCF’s below-average loan and deposit growth relative to peers, rising net charge-offs in its auto finance portfolio, and ongoing battle with the CFPB related to opt-in rules on overdraft charges. The company’s two-year CAGR for loans and deposits is 4.3% and 4.6%, respectively, compared to our midcap peer group of 10.4% and 8.4%. We believe TCF should trade at a wider discount to peers given our concerns.

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