Banking, finance, and taxes

New York's Signature Bank May Be the Top COVID-19 Vaccine Winner in Banking

Jon C. Ogg

Published: November 16, 2020 11:26 am

With two different COVID-19 vaccine programs now showing over 90% efficacy, investors are betting on a continued economic recovery in 2021. Concerns of loan defaults and weaker consumer credit metrics have been holding the banking industry down, and the zero-interest-rate policy of the Federal Reserve means that banks cannot even make money on a spread in the cash they hold for depositors.

There are of course some exceptions, and one bank stock that may have significant upside ahead is Signature Bank (NASDAQ: SBNY). As this is not one of the legacy banks with a 100-year or longer history, many investors just do not know Signature.

As of summer of 2020, the outfit counted 32 private client offices located mostly in the New York metropolitan area. This includes Greenwich, Connecticut, as well as San Francisco and Charlotte. The bank’s market cap also was a mere $5.9 billion on last look.

The driving force behind featuring Signature Bank is that Wedbush Securities has issued a very favorable research note on it, and the firm already was above consensus on its targets. Wedbush had an Outperform rating and a $126 price target, and on Monday the firm added it to the Best Ideas List.

Wedbush sees Signature Bank as having consistently strong deposit and loan growth. It also sees a positive net interest income, despite compression in net interest margin. This leads to overall earnings power that should be able to outpace any credit issues that came from the pandemic. Another driving force behind the call is that investor sentiment on the stock has been very negative since March because of its high exposure to the New York City market.

Wedbush had talked up the Pfizer vaccine announcement from last week, but now there is the Moderna vaccine that does not have the same storage and temperature issues as the Pfizer vaccine. All in all, there could be a return to normality in 2021, even if the next few quarters may see a rise in nonperforming loans.

Another driver here is Signature Bank’s valuation. The Wedbush report expects additional stock gains as it becomes clear that losses are likely to be lower than expected. The bank’s stock is valued at just 7.9 times Wedbush’s 2021 earnings per share (EPS) estimate.

Wedbush’s David Chiaverini said:

Given Signature Bank’s massive deposit growth, the bank will have plenty of funding to deploy into loans once the economy has a more complete recovery, which should drive net interest income higher while also benefiting the net interest margin, which has been under pressure from significant amounts of excess liquidity. Even though we expect net interest margin to be under pressure, we expect this to be more than offset by strong growth in average earning assets.

Other firms have been positive on Signature Bank since the start of October, with some mixed direction on target prices:

• Credit Suisse maintained it as Outperform and raised its target to $120 from $107 on November 11, after having just initiated coverage on October 9.
• Morgan Stanley maintained its Overweight rating but cut its target to $120 from $140 on November 3.
• Raymond James maintained its Strong Buy rating but cut its target to $117 from $140 on October 21.

Signature Bank traded up over 7% at $110.20 on Monday morning. Its 52-week range is $68.98 to $148.64, and the Refinitiv consensus analyst target price is $118.17.

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