Citi starts regional banks with Western Alliance, First Horizon among top picks

Citi initiated coverage of 19 regional banks with a constructive sector view. The firm likes the “juxtaposition of discounted valuations” coupled with its view that the best time to buy bank stocks is the transition from late-cycle to early-cycle when credit will fare better than market concerns. Citi’s top picks include Western Alliance (WAL), East West Bancorp (EWBC), First Horizon (FHN) and Wintrust Financial (WTFC). The analyst’s other Buy-rated names are Bank OZK (OZK), Old National Bancorp (ONB), Pinnacle Financial (PNFP), Popular (BPOP), Prosperity Bancshares (PB), Webster Financial (WBS) and Western Alliance (WAL). Citi’s only Sell-rated regional bank is Cullen/Frost (CFR). today’s valuation premium “dramatically exceeds” the national average for similar sized peer and banks with comparable profitability metrics, the analyst tells investors in a research note. The firm’s Hold-rated names are BankUnited (BKU), BOK Financial (BOKF), Cadence Bank (CADE), Columbia Banking (COLB), Hancock Whitney (HWC), Home BancShares (HOMB), Texas Capital (TCBI) and Valley National (VLY). Citi recommends pair trades of Western Alliance over Cullen/Frost, and Bank OZK over BankUnited. The firm opened a “30-day positive catalyst watch” on Cadence Bank and “90-day negative catalyst watch” on Texas Capital Bancshares.