Citi sees 'coiled spring' for bank stocks, with Hancock Whitney in the spotlight

MW Citi sees 'coiled spring' for bank stocks, with Hancock Whitney in the spotlight

By Steve Gelsi

Citi analyst Ben Gerlinger sees bank stocks as 'attractive' for a 10%-plus rise

Citi analyst Ben Gerlinger on Monday launched a "positive catalyst watch" on financial firm Hancock Whitney Corp. while forecasting a summertime rally for regional-bank stocks.

"The historical playbook suggests limiting bank exposure as credit costs pick up, but we believe now is a very attractive entry point given the near historic low valuation starting point," said Gerlinger, who covers 21 regional banks.

The space remains "well positioned" to rally by 10% to 15% until the autumn months when stocks will likely become "range-bound" due to uncertainty around the U.S. presidential election, he said.

The KBW Nasdaq Bank Index BKX is up by 8.4% so far in 2024, while the SPDR S&P Regional Banking ETF KRE has fallen by 4.3%, compared to an 8.2% gain by the S&P 500 SPX.

Hancock Whitney $(HWC)$ appears to be on the verge of a large share purchase authorization before June 30 due to its excess capital over historical trends, Gerlinger said in a research note.

This amounts to a "clear catalyst to potentially re-rate shares higher and drive incremental earnings per share upside," said Gerlinger, who reiterated a buy rating on the stock.

Shares of Hancock Whitney rose 1.9% on Monday.

Comerica's $(CMA)$ stock rose 0.9% on Monday, even as Gerlinger cut his rating on the bank to neutral from buy due to limited loan growth and "deposit mix shift trends," which will remain elevated.

These two main factors are "ultimately pushing us to the sidelines for the time being" due to a "modestly more conservative stance" on the company, he said.

Gerlinger also reiterated buy ratings on 10 other banks: Western Alliance Bancorp. $(WAL)$, Popular Inc. $(BPOP)$, Webster Financial Corp. $(WBS)$, Bank OZK $(OZK)$, Prosperity Bancshares Inc. (PB), East West Bancorp Inc. $(EWBC)$, First Horizon Corp. $(FHN)$, Pinnacle Financial Partners (PNFP), Old National Bancorp (ONB) and Wintrust Financial Corp. $(WTFC)$.

He also continued to rate several banks as neutral: Valley National Bancorp $(VLY)$, Cadence Bank (CADE), BOK Financial Corp. $(BOKF)$, Zions Bancorp $(ZION)$, Columbia Financial Inc. $(CLBK)$, Texas Capital Bancshares Inc. (TCBI), New York Community Bancorp Inc. $(NYCB)$ and BankUnited Inc. (BKU). He also reiterated a sell rating on Cullen/Frost Bankers Inc. $(CFR)$.

Sifting through first-quarter earnings, Gerlinger said credit results were mostly better than feared.

Credit trends for the entire industry continue to show healthy stability when backing out "well-telegraphed" concerns over the office space segment within commercial real estate, he said.

"Given the limited near-term growth assumptions and excess capital continuing to build across the industry, we see the current valuation set-up as a bit of a coiled spring - which has historically moved fairly quickly," Gerlinger said.

Also read: TD Bank's stock selloff on money-laundering report is overblown, says KBW analyst

-Steve Gelsi

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May 06, 2024 11:33 ET (15:33 GMT)

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