KBW rejigs regional bank ratings; upgrades Fifth Third, Popular to Outperform

Keefe, Bruyette & Woods revisited its regional lender coverage in the aftermath of recent volatility for bank stocks, upgrading Fifth Third Bancorp (NASDAQ:FITB) and Popular (NASDAQ:BPOP) to Outperform from Market Perform.

Analyst David Konrad noted that Fifth Third (FITB) has better upside. "Improved profitability from Dividend Finance in H2 2023, capital generation and under 1% CRE office exposure should drive outperformance in the stock."

EPS estimate changes: 2023E/2024E cut to $3.70/$3.60 from $3.90/$4. Price target reduced to $34 from $38 (31.9% potential upside to FITB's last close).

Popular (BPOP) was upgraded on favorable risk/reward, with KBW saying the stock's recent selloff was overdone. "The crux of our call is two-fold: 1) TBVPS growth that is 2-3x peers, and 2) cheap valuation," said analyst Kelly Motta.

EPS estimate changes: 2023E/2024E cut to $8.21/$8.21 from $9.29/$9.65. PT unchanged at $74 (32.5% potential upside to BPOP's last close).

KBW upgraded Huntington Bancshares (HBAN) to Market Perform from Underperform as its premium valuation has now moved closer to peers. "The premium is appropriate given stronger-than-peer liquidity, strong capital and lower volatility to earnings," said KBW's Konrad.

EPS estimate changes: 2023E/2024E cut to $1.45/$1.40 from $1.52/$1.45. PT reduced to $13 from $13.50 (17.8% potential upside to HBAN's last close).

Meanwhile, Atlantic Union Bankshares (AUB) was downgraded to Market Perform from Outperform given recent outperformance and risk of lower guidance. "We see little upside to valuation from here as we believe AUB will need to lower guidance from higher funding costs, slower growth and more reserve build," said analyst Catherine Mealor.

EPS estimate changes: 2023E/2024E cut to $3.05/$3.20 from $3.50/$3.45. PT lowered to $36 from $42 (6.2% potential upside to AUB's last close).

Earlier, PNC Financial was cut to Underperform at KBW while Columbia Banking was upgraded to Outperform.