Investing

Why Wedbush Is Pumping the Brakes on Huntington Bancshares, Keycorp and Other Financial Stocks

Chris Lange

Published: July 5, 2022 10:41 am

A long holiday weekend did not slow markets from their search for the bottom, as Monday saw stocks retreat further into the red. Monday’s fall-off really only solidifies more investors’ concerns that we are already in a recession, and Wall Street seems to agree. In fact, one major brokerage firm thinks that even considering this turn lower, there are some stocks to steer clear of in the near future.

Wedbush has issued a few calls with a focus on the banking and finance industry. Each call is moderately positive, forecasting slight upside in both the near and long term. However, there are concerns within the industry about what the Federal Reserve plans to do and how it will ultimately impact the economy.
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While headwinds have put a damper on the markets in general over the past few months, Wedbush believes that a couple of these stocks could provide some upside in the coming months and years.

It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

SVB Financial

Wedbush’s David Chiaverini downgraded SVB Financial Group (NASDAQ: SIVB) from Outperform to Neutral. The $450 price target implies upside of 12% from the most recent closing price of $402.56.

Chiaverini sees slowing growth in a recessionary environment and believes SVB’s end markets could be disproportionately affected, including venture capital-backed backed companies in the high-tech and biotech industries. It appears that we are roughly six months into an 18 to 24 month downturn, given the significant amount of liquidity being withdrawn from the banking system by the Federal Reserve and the resulting negative impact this could have on the economy, including lower loan growth and higher credit costs for banks.

The stock traded around $390 on Tuesday, in a 52-week range of $374.99 to $763.22. Shares are down over 41% year to date.

Huntington Bancshares

Peter Winter was the lead analyst on this call. He downgraded Huntington Bancshares Inc. (NASDAQ: HBAN) from Outperform to Neutral with a $14 price target. That implies upside of 14% from the most recent closing price of $12.24.

Winter also removed the stock from the Wedbush Best Ideas List, based on concerns about the increased risks of recession as the Fed is on track to aggressively raise rates to combat inflation pressures. A recessionary environment will negatively affect the entire bank group. However, Winter believes balance sheet positioning at Huntington Bancshares is less favorable relative to his regional bank peers.

Huntington Bancshares stock has a 52-week trading range of $11.67 to $17.79, and it traded near $12 a share on Tuesday. The stock is down 21% year to date. The dividend yield is 5.1%.

East West Bancorp

Chiaverini was on this call as well, and he downgraded the shares to Neutral from Outperform and has a $75 price target. East West Bancorp Inc. (NASDAQ: EWBC) stock closed most recently at $66.43, so the implied upside is 13%.
On East West Bancorp, Chiaverini says his downgrade is more of a macro call than a company-specific call, driven by potentially slowing growth in a recessionary environment. As previously stated, Chiaverini believes we could be six months into an 18 to 24 month downturn.

The stock traded around $64 on Tuesday, in a 52-week range of $61.65 to $93.51. Shares are down over 16% year to date. The dividend yield is 2.5%.
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KeyCorp

Winter cut the Outperform rating on KeyCorp. (NYSE: KEY) to Neutral and lowered the $26 price target to $20. The implied upside from the most recent closing price of $17.49 is 14%.

Here too Winter sees increased risks of recession as the Fed on track to aggressively raise rates to combat inflation pressures. As per all these analyst calls, this recessionary environment will have a negative impact on the entire bank group. KeyCorp’s balance sheet positioning is less favorable relative to its regional bank peers. Winter notes that KeyCorp is less asset sensitive and has a lower level of excess cash as a percentage of average earning assets, which could pressure net interest income if deposit outflows are greater than expected.

KeyCorp stock has a 52-week trading range of $16.69 to $27.17, and it traded near $17 a share on Tuesday. The stock is down about 24% year to date. It has a dividend yield of 4.5%.

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Western Alliance Bancorp

On Western Alliance Bancorporation (NYSE: WAL), Chiaverini downgraded the shares to Neutral from Outperform. The $80 price target implies upside of 10% from the most recent closing price of $72.65. Chiaverini again made this downgrade as a macro call on the industry, considering the recessionary environment going forward.

The stock traded around $70 on Tuesday, in a 52-week range of $68.42 to $124.93. Shares are down over 33% year to date. The dividend yield is 1.9%.

Webster Financial

Webster Financial Corp. (NYSE: WBS) was the last company in the group, and Chiaverini made the call again. Wedbush downgraded the stock to Neutral from Outperform and has a $50 price target. That implies upside of 15% from the most recent closing price of $43.45.

Yet again, Chiaverini implied that this was more of a macro call, given the recessionary environment and the likelihood of the Fed raising interest rates and the negative impact this will have on the economy.

Webster Financial stock has a 52-week trading range of $41.22 to $65.00, and it traded near $41 a share on Tuesday. The stock is down 23% year to date. It has a dividend yield of 3.6%.