: An improving credit outlook, M&A, higher interest rates and loan growth drive upgrade of U.S. regional banks
Raymond James analyst Micahael Rose on Thursday upgraded three regional banks and cut his view on one in anticipation of a mostly positive outlook for the sector heading into 2022.
“We have become increasingly bullish on the banking sector over the past year,” Rose said.
Key catalysts include improving credit, an accelerated pace of mergers and acquisitions, higher interest rates and a return of loan growth.
All told, 77 out of the 139 banks that Raymond James covers are rated strong buy or outperform.
“We see similar catalysts for the sector heading into 2022 as we did in 2021 which we believe will likely lead to positive EPS revisions throughout 2022,” Rose said.
Net interest margins are expected to expand, as banks deploy excess liquidity and demand from commercial and industrial borrowers improves.
Raymond James upgraded CrossFirst Bankshares CFB, +3.72% to strong buy from outperform, with a price target of $18 a share.
“Loan growth will be supported by continued hiring efforts across its footprint, its recent entry into Phoenix and deepening of its Texas presence, which we project will support high-single-digit loan growth through 2023,” Rose said. “Moreover, we see the recent appointment of Ben Clouse as CFO as an incremental positive given his larger company experience (former CFO of Waddell & Reed Financial Inc. “
SouthState Corp. SSB, +0.30% and Atlantic Capital Bancshares Inc. ACBI, +0.57% were upgraded to outperform from market perform, ahead of the merger of the two banks expected to close by the end of the first quarter. Raymond James set a price target of $90 for SouthState.
SouthState tailwinds include its “solid” loan growth potential in the mid-to-high single-digits, benefits of its merger in June with CenterState Bank and a boost from its pending acquisition of Atlantic Capital Bancshares, he said.
On the minus side, Raymond James downgraded Prosperity Bancshares Inc. PB, -0.06% to market perform from outperform. “We see little in the way of material catalysts to improve its relative valuation versus peers in the nearer-term,” Rose said.
The ratings moves by Raymond James come after a strong year for bank stocks, with the KBW Nasdaq Bank Index BKX, +1.83% up by 36% in 2021 including gains on Thursday.
CrossFirst Bankshares stock has gained 41% in 2021, including a jump of nearly 5% on Thursday. SouthState is up by about 11% this year, including a rise of 2% on Thursday. Prosperity Bancshares has risen 4.3% this year.