Regional Bank Analyst Slashes Price Targets Across The Board: 'Interest Rates Pose Significant Risk'

Zinger Key Points
  • Bank of America has cut its price target for 24 bank stocks.
  • BofA recommends investors rotate out of regional banks and into diversified mega-cap banks.

The SPDR S&P 500 ETF Trust SPY stabilized Monday, but extreme volatility among U.S. regional banks is ongoing in the wake of the failures of SVB Financial Group SIVB, Signature Bank SBNY and Silvergate Capital Corp SI.

While bank stock investors are hoping the worst of the contagion fears are now over, Bank of America analyst Ebrahim Poonawala cut his price targets for a number of bank stocks and said the environment for regional banks will be difficult for the foreseeable future.

Related Link: How Have Bank Failures Impacted The Outlook For Interest Rates?

Key Price Target Cuts: Poonawala cut his price target for two dozen bank stocks, including several Underperperform-rated stocks. Among his Underperform-rated names, Poonawala cut his price target for Ally Financial Inc ALLY from $28 to $25, his target for PNC Financial Services Group Inc PNC from $150 to $132, for Zions Bancorporation NA ZION from $50 to $38 and for First Hawaiian Inc FHB from $24 to $21.

Poonawala also cut targets for other bank stocks that he sees as potential buying opportunities for investors. Among Buy-rated stocks, Poonwala cut his price target for KeyCorp KEY from $20 to $17, for New York Community Bancorp, Inc. NYCB from $11 to $8, for Fifth Third Bancorp FITB from $38 to $34 and for Citizens Financial Group Inc CFG from $47 to $39.

Why It Matters: In the coverage note, Poonawala said bank stocks may bounce at some point on policy headlines or macroeconomic data, but the relief rally won't change the difficult environment.

"Our cautious view on the sector is informed by our opinion that higher-for-longer interest rates pose significant risk to the outlook for bank EPS in the form of increased pressure on net interest margins, slowing loan growth and worsening credit quality," Poonawala said.

He prefers investors looking for banking industry exposure rotate out of regional banks and into diversified mega-cap banks.

Benzinga's Take: Investors can take Poonawala's advice and set up a banking pair trade by going long the Financial Select Sector SPDR Fund XLF to maintain diversified exposure to large-cap banks and pairing it with a short position in regional banking ETFs Invesco KBW Bank ETF KBWB or SPDR S&P Regional Banking ETF KRE.

Photo via Shutterstock. 

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Posted In: Analyst ColorPenny StocksPrice TargetReiterationTop StoriesAnalyst RatingsETFsBank of AmericabanksEbrahim PoonawalaExpert IdeasInterest Ratesregional banks
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