Well, it looks like banking stocks aren’t as solid and reliable as they used to be. In 2023, we’ve seen multiple bank collapses and crazy levels of volatility that would make even a meme stock blush.
For an example of the wild swings at play, just a look at the trading shenanigans seen over the past week for shares of PacWest Bancorp (PACW) will suffice. We’ve had down 28% and 51% days, followed by an 82% surge.
Fears of banking contagion and an announcement that the bank is mulling over a sale helped fuel the big crashes before a huge rally countered the overdone sell-off.
Meanwhile, the company has announced a reduction in its quarterly dividend from $0.25 to $0.01 per common share. Given the current banking sector woes, PacWest views the dividend reduction as a prudent step that will help it reach a CET1 (common equity tier 1) capital ratio of over 10%.
It’s a move that gets the blessing of RBC analyst Jon Arfstrom. “Given the extreme volatility in the stock recently, along with the low valuation relative to TBV, we believe this dividend reduction makes sense and can help the pace of capital building,” Arfstrom wrote. “As we have mentioned in prior notes, being in the stock requires an ability to handle higher volatility and also the ability to react to the news flow that seems to follow the company at this point. The dividend adjustment makes sense to us as continuing that high payout ratio was a headwind to achieving the capital goals of the company.”
For now, Arfstrom sticks with an Outperform (i.e., Buy) rating on PacWest shares, along with a $17 price target, implying shares will post growth of a huge 201% over the next year. (To watch Arfstrom’s track record, click here)
Most analysts, though, prefer sitting this one out. The stock claims a Hold consensus rating, based on 6 Holds vs. 2 Buys. However, plenty of those on-the-fence analysts might as well have said Buy as the $17.2 average target makes room for 12-month returns of ~204%. (See PACW stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
