Wedbush Securities analysts upgraded Western Alliance's (WAL) stock after the bank gave a strong update on deposits in its latest earnings report.
Western Alliance said Tuesday that it added $2 billion in deposits during the first two weeks of April. That helped send Western Alliance's stock 14% higher in Wednesday's trading session.
In a note to clients after the report, Wedbush raised its rating on the stock to Outperform from Neutral while raising its price target to $50 from $38 per share. Wedbush also added Western Alliance to its “Best Ideas List.”
“Deposit outflows in March have partially reversed and WAL’s higher level of insured deposits at 73% should help support deposit level going forward, in our view,” Wedbush wrote in the note. Western Alliance says 73% of its deposits are insured by the FDIC, up from 45% to start the year.
Wedbush added Western Alliance to its “Best Ideas List," along with New York Community Bancorp (NYCB), M&T Bank Corporation (MTB) and Regions Financial Corporation (RF). Regions Financial is set to report earnings on Friday, and NYCB is expected on April 28.
Investors have focused on deposit levels at financial institutions as customers have drained billions of dollars from America's banks amid rising interest rates and last month's bank failures. Deposits dropped at US Bancorp (USB) and Citizens Financial Group (CFG) during the first quarter, showing how challenging the period was for some of the nation's regional lenders.
Still, roughly one month after Silicon Valley’s Bank sent the banking sector into a tailspin, Western Alliance’s update has Wall Street analysts saying it’s time to buy regional bank stocks again.
Wedbush noted Western Alliance's valuation is “compelling,” given that its price-to-earnings ratio is currently lower than other mid-cap bank peers.
Twelve of the 13 analysts who have published research since the earnings report rate the stock a Buy, with an average price target of $57.40 per share, according to Bloomberg consensus data.
“A transitional quarter for our tactical call, but one that took existential risk off the table,” Wells Fargo Securities Vice President Timur Braziler wrote in a note to clients.
Western Alliance’s stock had tumbled amid the banking crisis, falling more than 80% across three trading sessions ending on March 13. Christopher McGratty, KBW's Head of U.S. Bank Research told Yahoo Finance Live Western Alliance was caught up in "guilt by association" as its stock tanked in March.
Like Silicon Valley Bank, Western Alliance is a high-growth company with a significant amount of commercial deposits, McGratty said. He believes Western Alliance is in a "different situation" than other regional banks, where some earnings have disappointed.
McGratty rates Western Alliance as his top pick in the sector on the heels of the bank's deposit update.
"That is them telling us that they are distancing themselves from the crisis that was five years ago," McGratty said.
Josh is a reporter for Yahoo Finance.
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