The weak macroeconomic environment led to a correction in the shares of major regional banks in the United States. However, improving NII (net interest income) trends, due to an increase in loans and deposits, and rising interest rates imply that better days are ahead for regional banks. Meanwhile, credit quality stability and operating leverage are positive. Against this background, Robert W. Baird analyst David George suggests buying the falling shares of Citizens Financial (NYSE: CFG), PNC Financial Services (New York Stock Exchange: PNC), and Huntington Bancshares (NASDAQ: HBAN).
The analyst said: “Financials look more attractive after the recent pullback, the outlook is good, so use the weakness to add positions selectively.”
However, before drawing any conclusions, investors should note that major regional banks may soon face new rules that could increase their costs.
Recently, the the wall street journal reported that a group of banking regulators were considering implementing new rules requiring regional banks to add more capital to their balance sheets. This cushion could be used in times of distress.
The report pointed out that, like major US banks, regional banks could be forced to raise long-term debt that would act as a cushion in times of crisis. This would increase the cost of capital for these banks, as most of them currently finance their operations through their low-cost deposit base.
While it’s unclear when the new rule will be implemented or what its impact will be on regional banks, let’s take a look at these stocks individually and understand which regional banking stock is most likely to beat market expectations.
Is Citizens Financial Group a buy?
With $226.7 billion in assets (as of June 30, 2022), Citizens Financial Group shares earn a strong buy consensus rating on TipRanks based on 10 buys and three holds. CFG’s average price prediction of $46.85 implies 27.1% upside potential.
Along with analysts, CFG stock is receiving positive signals from hedge funds and retail investors. While hedge funds bought 414,500 CFG shares last quarter, 2.2% of investors on TipRanks increased their holdings in the past 30 days.
CFG stock has a smart “Perfect 10” score on TipRanks, implying that it has strong potential to outperform the market.
Is PNC a good stock to buy?
With average total assets of $544 billion (as of June 30, 2022), PNC is one of the largest regional banks in the United States.
PNC sports a moderate buy consensus rating on TipRanks, which is based on eight buys, seven holds and one sell. Additionally, PNC’s average price target of $185.87 implies 13.5% upside potential.
While Street is cautiously bullish on PNC stock, it has a smart neutral score of six out of 10 on TipRanks, implying the stock could perform in line with market averages.
Notably, hedge funds and insiders have reduced their holdings of PNC shares over the past three months. While hedge funds reduced their stake in the company by selling 23,200 PNC shares during the last quarter, insiders sold their shares for a value of $584,300 during the same period.
Will Huntington Bank shares rise?
Given near-term macro concerns, analysts expect limited upside in Huntington Bank shares over the next 12 months.
HBAN’s average price prediction of $15.04 implies an upside potential of 9.7%. On TipRanks, HBAN stock commands a Moderate Buy consensus rating based on six buys and seven holds.
HBAN stock has an underperforming smart score of three out of 10 on TipRanks.
Last quarter, hedge funds reduced their stakes in the company by selling 3.4 million shares of HBAN. Additionally, 1.6% of investors on TipRanks have sold HBAN shares in the past 30 days.
While improving NII, stable credit performance, rising interest rates and operating leverage are likely to support the growth of the regional banks mentioned above, the stock comparison tool of TipRanks shows that CFG stock has a higher probability of outperforming its peers.
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