Market Overview

6 Rate-Sensitive Stocks Worth Considering Before FOMC Hikes

6 Rate-Sensitive Stocks Worth Considering Before FOMC Hikes

Analysts at Wunderlich Securities are looking for the Federal Reserve to start raising interest rates in September 2014, followed by 25bps of hikes every other meeting by year-end 2016. That accounts for roughly 150bps of hikes.

Across the sector, Wunderlich's Kevin Reynolds said that "higher short-term interest rates will be a positive development for the entire banking industry in general." However, he cautioned, "not all banks will benefit to the same degree."

Wunderlich identified six stocks where higher rates would "move the needle meaningfully," namely Regions Financial Corp (NYSE: RF), Cullen/Frost Bankers, Inc. (NYSE: CFR), First Horizon National Corp (NYSE: FHN), IBERIABANK Corp (NASDAQ: IBKC), Hancock Holding Company (NASDAQ: HBHC), and BancorpSouth, Inc. (NYSE: BXS). Of these names, however, Wunderlich seems to believe just two are worth buying: BancorpSouth and IBERIABANK. Here is how Reynolds broke it down:

  • BancorpSouth: Wunderlich hiked BancorpSouth's price target by $2 to $30. That target reflects additional EPS of $0.15 to $0.33, depending if the Fed hikes rates by 100 or 200 basis points. The price target reflects 17 percent upside in the stock.
  • IBERIABANK: IBERIABANK's price target goes up by $5 to $80 per share, reflecting incremental EPS gains of $0.12 to $0.29, depending on the magnitude of rate hikes. The company, which closed Monday at $67.91, would see nearly 18 percent of upside should these price targets be reached.
  • Regions Financial: Wunderlich sees 7 percent upside in Regions Financial, reflecting a price target of $11 compared with Monday's closing price at $10.29. The 100/200 basis points increases would yield between $0.06 and $0.11 of EPS gains.
  • Cullen/Frost Bankers: Despite the belief that Cullen/Frost is one of the banks positioned to perform well in rising interest rate environment, Wunderlich's price target suggests that shares are fully valued at the moment. Reynolds tagged shares with a $74 price target, a $4 increase over prior, versus a closing price of $78.60 on Monday.
  • First Horizon National: Wunderlich's price target on First Horizon National falls nearly 3 percent below the stock – at $15 versus a $15.46 closing price. The $15 price target does reflect a $1 increase from prior value estimates.
  • Hancock Holding Company: Finally, Reynolds placed a $31 price target – a $1 increase from prior – on Hancock. The shares, which closed at $31.87, still sit 2.7 percent above Reynolds' price target.

Year-to-date, BancorpSouth and First Horizon National have performed the best, each rising more than 13.5 percent. Cullen/Frost Bankers gained 11.2 percent, while IBERIABANK and Hancock Holding Company each added ~4 percent. Regions Financial is the only bank underperforming the market, falling 2.6 percent on the year.

Latest Ratings for RF

Jan 2021Keefe, Bruyette & WoodsUpgradesMarket PerformOutperform
Jan 2021Raymond JamesMaintainsStrong Buy
Jan 2021BairdDowngradesOutperformNeutral

View More Analyst Ratings for RF
View the Latest Analyst Ratings


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