Bernstein Believes Recent Weakness In Keycorp, Fifth Third, Citizens, Zions Has Created Attractive Entry Point

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  • Shares of several mid-cap banks have plunged by mid-double-digit percentages in the past five trading days.
  • Bernstein’s Kevin Pierre upgraded the ratings on Citizens Financial Group Inc CFG, Fifth Third Bancorp FITB, KeyCorp KEY and Zions Bancorporation ZION from Market Perform to Outperform.
  • Pierre said the recent weakness in shares had pushed these stocks towards tangible book value, representing an attractive entry point relative to normalized returns.

Analyst Kevin Pierre said that the stocks of regional banks had plummeted from recent peaks due to “the evaporation of the rate trade,” while the likelihood of the Fed increasing its rate has not changed significantly.

Referring to Citizens Financial, Pierre mentioned that there is execution risk in its fee revenue growth and expense control initiatives. Despite this, the stock appears attractive “relative to the risk that the company falls short of their double-digit ROE expectations.” The price target has been raised from $27 to $29.

Regarding Fifth Third and KeyCorp, the analyst wrote, “When we dig into core operating results across our coverage, we see a common thread among some of the stocks trading at thin P/Es: they are already earning a ~1% ROTA without the benefit of rates.” The price target for Fifth Third has been reduced from $25 to $23, while KeyCorp's price target is maintained at $16.

Pierre added that Zions’ asset sensitivity disclosures appeared to be “more reliable than most,” since the company had historically proven to be asset sensitive. The price target has been raised from $30 to $32.

In the report Bernstein noted, “While we see roughly 25% relative upside at each of the stocks we are upgrading, our order of preference would be KEY (excess capital, less reliant on rates), FITB (less reliant on rates), CFG (reliant on rates, excess capital), and ZION (reliant on rates, excess capital, energy risk).”

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