Regional banks PNC, KEY, WFC among the best buying opportunities in years, Baird says
The defeat at regional banks has resulted in one of the best buying opportunities in “many years,” according to Baird. The SPDR S&P Regional Banking ETF (KRE) is down nearly 25% over the past three trading days and the group is trading on a pre-delivery net earnings basis below pre-Covid lows, analyst David George said in a note on Tuesday. The metric George quotes is useful in assessing whether a bank can remain capitalized in difficult economic conditions. “Extreme fear and negative sentiment continue to drive the group lower, but we believe the risk of contagion is generally low and believe investors should take advantage of the weakness to gain exposure to the group,” he wrote. KRE 5D Mountain KRE five-day performance Regional bank stocks plummeted after the collapse of Silicon Valley Bank, even after US regulators bailed out all depositors in the banks. On Tuesday, the sector tried to recover. George noted that while liquidity movements are generally difficult to predict, the average retail or corporate customer at most regional banks is nothing like those at SVB. “We continue to believe that the issues surrounding SVB and SBNY/Signature are idiosyncratic and stem from less granular funding rather than a systemic underlying franchise weakness,” he said. In his coverage universe, he has overweight ratings on 11 regional bank stocks. KeyCorp and Comerica were the hardest hit Monday, both down more than 27%. Baird upgraded KeyCorp to outperform on Friday, citing the stock’s good entry point given its recent weakness. The company’s price target for KeyCorp implies an upside move of nearly 76% from Monday’s close. His price target for Comerica points to a 127% upside move. Comerica and KeyCorp both have an average analyst rating of overweight, according to FactSet. On Monday, however, Moody’s put Comerica on review for a downgrade. The company said the review for Comerica and five other regional banks “reflects extremely volatile funding conditions for some U.S. banks, which are at risk of uninsured deposit outflows.” Separately, Moody’s also gave the sector a negative rating, citing the rapidly changing conditions surrounding the recent bank failures as the reason for its stance. But even after Moody’s comments, bank stocks still recouped some lost ground on Tuesday, including shares in Fifth Third Bancorp, which rose nearly 3%. The stock was highlighted by Baird as a buying opportunity. The company expects the stock to be up nearly 68% since the close on Monday. CEO Timothy Spence told CNBC Monday that Fifth Third Bancorp doesn’t have the same problems as the failed banks. “I’m extremely comfortable with the position we have. We have one of the most detailed and stable deposit bases of any regional bank, with a significant portion of our deposits coming from individuals,” he said in a Squawk on the Street interview Monday. Meanwhile, PNC Financial Services has upside potential of about 50% from Baird’s price target. The Pittsburgh-based bank had been considering buying Silicon Valley Bank, the Federal Deposit Insurance Corp said. however, on Saturday that she would not be continuing, a source told CNBC. Baird is far from the only solid uptrend at PNC. The average analyst target price is overweight, according to FactSet. Citi also upgraded shares in the bank on Monday to buy it off hold. The Wall Street firm cited PNC’s strong management team and the stock’s attractive entry point. — CNBC’s Michael Bloom contributed coverage.