The U.S. Fed’s hike in interest rates has led to Wall Street analysts expecting higher net interest income (NII) for the banking sector. With the Fed signaling more rate hikes to come, investors’ attention has turned to bank stocks. This has led to soaring share prices for stocks in the banking sector.
While the Nasdaq Bank Index has gone up by only 1.4% in the past year, shares of Wells Fargo (WFC), Bank of America (BAC), and Morgan Stanley (MS) have gone up by 22.8%, 2.6%, and 11.9%, respectively.
Wedbush analyst Peter Winter expects that this trend of rising NII, increasing loan growth, and “shifting record levels of excess cash into higher yielding securities” could play out in the banking sector’s Q1 earnings.
However, the analyst also cautioned that Russia’s war on Ukraine could lead to inflationary pressures and “a higher risk of a recession as the Fed combats inflation.”
In this scenario, Winter expects regional and mid-cap banks to benefit. Last week, we looked at Winter’s top regional banking stock picks. This week, let us look at the top-rated analyst’s mid-cap top banking stock picks.
Customers Bancorp (NYSE: CUBI)
Customers Bancorp, Inc. is a bank holding company headquartered in West Reading, Pennsylvania whose bank subsidiary, Customers Bank, is a full-service bank. The bank had assets worth $19.6 billion as of December 31.
Investors are bullish about CUBI as the stock has soared 56.2% in the past year. Last week, even S&P Global Market Intelligence ranked CUBI third in a list of the best performing publicly traded U.S. public banks having assets worth more than $10 billion at the end of 2021.
Winter is also optimistic about the bank and believes there are a number of key positives for the stock. This includes plenty of diversity when it comes to the bank’s revenue sources and opportunity for growth over the next two years which is “not reflected in valuation, in our view.”
As a result, the analyst has forecasted “above average” growth in earnings per share (EPS), excluding the Paycheck Protection Program (PPP) over the next two years. Winter is also upbeat about the bank’s “strengthening deposit franchise,” and its “transition from a community bank to digital first company.”
The analyst anticipates that this year CUBI could very well register a loan growth in “low double digit[s].”
This has resulted in Winter being bullish on the stock with a Buy rating and a price target of $76 on the stock, implying an upside potential of 52.9% to early trading levels on Tuesday.
Other analysts on Wall Street side with Winter and are upbeat about the stock with a Strong Buy consensus rating based on four Buys and one Hold. The average CUBI stock prediction is $76.30, implying 53.5% upside potential to early morning trading levels on Tuesday.
Silvergate Capital Corp. (NYSE: SI)
Silvergate Capital is the parent company of Silvergate Bank and is a chartered bank in the State of California with its headquarters in San Diego. According to the company website, the bank provides “financial infrastructure solutions and services to participants in the nascent and expanding digital currency industry.”
It is this digital or cryptocurrency industry that could benefit Silvergate, according to Wedbush analyst David Chiaverini. The analyst believes that as more financial institutions adopt cryptocurrencies, SI could be “well positioned for continued growth.”
The analyst is of the view that for SI, the purchase of intellectual property and other technology assets from the Diem Group is a “significant positive.” In this past January, Silvergate purchased these assets from Diem related to “running a blockchain-based payment network.”
Chiaverini believes that this could result in SI partnering with “Diem Association members as well as potentially with money service businesses such as Coinbase, Robinhood, Paypal, and/or Square.” However, in such partnerships, SI could have an upper hand as it would control “the payment network.”
SI is the most “asset sensitive bank” in the analyst’s coverage universe with its NII expected to benefit by 60% if the interest rates go up by around 100 basis points.
Giving his rationale for a Buy rating on the stock, Chiaverini stated that this rating was “based on Silvergate’s very strong deposit and transaction growth, strong network effects that discourage new entrants, significant revenue opportunity from its stablecoin initiative [and] the vast potential stemming from the rapidly expanding digital currency market.”
The analyst has a price target of $200, closer to the Street high target of $260 on the stock, implying an upside potential of 30.5% to early morning trading levels on Tuesday.
The rest of the covering analysts on Wall Street are bullish on the stock with a Strong Buy consensus rating based on an unanimous eight Buys. The average Silvergate Capital stock forecast is $195.63, implying a 27.6% upside potential to early morning trading levels on Tuesday.
Wintrust Financial Corp. (NASDAQ: WTFC)
Wintrust Financial is a financial holding company based out of Illinois and provides personal and commercial banking services to customers located in southern Wisconsin, Chicago metropolitan area, and northwest Indiana. The bank had assets worth $50.1 billion as of December 31, 2021.
The company’s three business segments include community banking, specialty finance, and wealth management.
According to Wedbush analyst David Chiaverini, WTFC’s loans and deposits through Q4 grew at a Compounded Annual Growth Rate (CAGR) of 12.7% and 18.2%, respectively, higher than its mid-cap peer group of 5.2% and 16.6%.
The analyst expects “annual growth to remain above the industry average given its strong loan pipeline and unique community banking business model.” What’s more, this year, the analyst anticipates WTFC to be at the “high end or above” its guidance of loan growth in “mid-to-high single digits,” with one caveat.
Chiaverini has projected this loan growth only if geopolitical risks ease up and “business confidence remains healthy.”
The analyst continues to remain optimistic with a Buy rating and a price target of $115 on the stock, implying an upside potential of 24.7% to early morning trading levels on Tuesday.
Other analysts on Wall Street are also bullish on the stock with a Strong Buy consensus rating based on eight Buys and one Hold. The average WTFC stock forecast is $117, implying 26.8% upside potential to early morning trading levels on Tuesday.
Bottom Line
Analysts from Wedbush expect these mid-cap banks to sizably benefit from the rising interest rates and better growth rate for loans this year.
However, the analysts have cautioned that they remain concerned that “ongoing global unrest could unnerve consumers and businesses, prompting them to cut back on investments and lending needs.”
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