BofA reinstates First Horizon National and Western Alliance at Buy on attractive risk/reward

BofA analysts resumed First Horizon National (NYSE:) and Western Alliance Bancorporation (NYSE:) with Buy ratings in separate notes on Tuesday.

Analysts assigned First Horizon with a $14 per share price target, stating they resumed the rating following the termination of its announced merger with TD Bank (NYSE:).

“While we are cautious on the fundamental outlook for the industry, we believe stock valuation offers an attractive risk/reward with shares trading significantly below TBV (~$12 pro-forma 1Q23),” they said about FHN.

“The selling pressure from arbitrage investors (on deal break) in an already challenged backdrop for regional bank stocks likely exacerbated the move lower in the stock (-60% YTD). While our EPS estimates imply downside risk (~10%) to consensus forecast, we believe the lower EPS is adequately reflected in current stock valuation. Improved EPS visibility should drive positive re-rating.”

Analysts assigned WAL a $42 per share price target, down from $48, stating that their recent conversation with WAL management suggests that the impact from stock volatility “has been manageable.”

The company is “better positioned to absorb higher funding costs,” analysts declared. “WAL does not share a ton in terms of business model and balance sheet characteristics relative to the three failed banks. As an example, insured deposits at WAL now equal ~80% of total deposits, well above the ~60% peer average; ~10% at SVB/Signature. The same is true for WAL’s superior profitability, which should allow the bank to better absorb the impact from higher funding costs.”

Analysts labeled the risk/reward for WAL as attractive due to the combination of its strong execution, superior profitability, and healthy capital levels.