Shares of SVB Financial Group (NASDAQ:SIVB) have dropped about 32% in Wednesday’s extended trade and a further 29% at the time of writing. The decline in share price can be attributed to investors’ concerns about the dilution impact of the recently announced stock offering on the company’s earnings. Further, a rating downgrade by the rating agency Moody’s Investors Service may have also hurt sentiments.
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Common Stock Offering
Yesterday, the company revealed plans to offer shares worth $1.25 billion and $500 million in depositary shares in separate underwritten public offerings.
Moreover, SVB Financial has entered into a subscription agreement with an equity investor, General Atlantic. As per the agreed terms, the company will purchase stock worth $500 million in a private transaction.
Meanwhile, the company disclosed that it has sold $21 billion of its available-for-sale securities. As a result, SVB Financial expects to incur an after-tax loss of nearly $1.8 billion in the first quarter of 2023.
Rating Downgrade
Moody’s has downgraded SVB Financial’s local currency senior unsecured and long-term issuer ratings to Baa1 from A3. Also, its bank subsidiary, Silicon Valley Bank, has witnessed a downgrade of the standalone baseline credit assessment to a3 from a2.
Following the downgrades, the rating outlooks on SVB Financial and Silicon Valley Bank were changed from stable to negative. The revised outlook reflects concerns over the uncertain macro environment and the potential negative impact on the company from falling venture capital investment activity and high cash burn among its customers.
The rating agency is also apprehensive about the bank’s liquidity position and profitability, due to which it had to undertake a restructuring of its balance sheet. As per Moody’s, the company’s financial position is less likely to reach its historical levels over the next 12 to 18 months.
Is SIVB a Good Buy?
SVB Financial has a Moderate Buy consensus rating based on nine Buys, four Holds, and one Sell. SIVB stock’s average price target of $309.59 implies 15.6% upside potential. Shares of the company have gained 18.9% so far this year.
