There Is Nearly 150% Upside For This Regional Bank Stock‍

The Wells Fargo financial services company recommends that investors buy shares of beaten-down regional bank Western Alliance right now.

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The firm reiterated its overweight rating on the stock, as well as lowering its price target on the stock from $90 to $65. In spite of this, the new price target implies a 148.9% upside from the stock's Monday closing price of $26.12 to the new price target. 

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“After our discussion with [management] on Monday, we felt that the risk/reward relationship with WAL is attractive, with shares trading at 60% of [tangible book value], and that we came away with a renewed sense of optimism following our conversation,” analyst Timur Braziler wrote in a note on Monday. “The management update for 3-9 indicated an impressive increase in total deposits of $7.8B, or 15% Q/Q, and the updated update for Monday indicated only 'moderate' outflows since then.”

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There was a massive selloff of regional bank stocks on Monday following the failures of SVB Financial and Signature Bank, resulting in the loss of Western Alliance shares by 47%. While Braziler believes that Western Alliance has been able to maintain higher deposit balances quarter-to-date despite the stock's dive of over 60% since March 8, he believes a run on deposits is unlikely to occur due to its higher deposit balances quarter-to-date.

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In Braziler's words, the stock has been "thrown out with the bathwater," as he put it. "WAL got lumped with banks having an elevated perception of risk, given its exposure to private markets and incorrect Street analysis about the exposure of its deposits to uninsured funds."

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As one of the best-diversified banks both in terms of product offerings and geographic distribution, Wells Fargo is confident that Western Alliance will outperform the market despite the SVB-fueled volatility and interest rate hikes that are taking place at the moment.

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“The company continues to prove that no matter what the operating environment is, management can operate among the fastest-growing banks with excellent credit quality. "We expect WAL to remain one of the few institutions that do not skip a beat over the next few quarters, with management seeing good signs of growth in deposits of 13-17% in 2023," wrote Braziler. 

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There was an 18.2% increase in Western Alliance shares during premarket trading on Tuesday. Since the beginning of the year, shares of the company have fallen 56.1%.

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