In this piece, we will take a look at the 11 most undervalued bank stocks to buy according to Wall Street analysts. If you want to skip out on our introduction to the banking industry and the stock market, then head on over to 5 Most Undervalued Bank Stocks To Buy According To Wall Street Analysts.
Banking has been one of the most heavily covered industries in the financial press this year. This is due to the Federal Reserve’s aggressive interest rate hiking cycle that has pushed U.S. interest rates to multi-decade highs. The rate set by the Fed is central to the banking industry’s operations because banks are required to lend and borrow from each other at this rate. The higher this rate is, the costlier the borrowing becomes, and this is then transferred down to both consumers and businesses. For businesses, their short term borrowing revolves primarily around financing daily operations as they wait to collect payments and send money to suppliers before products generate revenue. For consumers, the high interest rates affect credit rates and other borrowing products.
However, while the bank rate is primarily concerned with bank to bank borrowing and lending, a rapid interest rate hike has broader effects on the economy. Some of these also directly affect banks, particularly if the bond market is disrupted. Bonds that are issued with lower rates drop in value when the interest rate increases and banks often rely on bonds to maintain their capital and asset requirements as legally mandated. The turmoil in the bond market also thrust the banking industry into the limelight earlier this year as some banks that had relied on cheaper bonds discovered that their assets had dropped rapidly in value. For more details on the mini banking crisis in the U.S. in 2023, you should check out Top 20 Most Profitable Banks in the World.
Moving into the second half of 2023, the banking industry is still quite dynamic. The March crisis spurred regulatory authorities into action, and new roles have been proposed to make sure that a similar crisis in the future does not affect the American economy. While the banks that failed in March were regional banks with smaller asset bases that did not put the economy at risk, other big banks, such as JPMorgan Chase & Co. (NYSE:JPM), can cause quite a lot of trouble if they were to face a similar environment. The rules are designed to ensure that the big banks are adequately capitalized to ensure that any turmoil does not spell into them being unable to meet their commitments. If you want to learn more about the different kinds of interest rates, and the results of a Federal Reserve stress test on the performance of big banks, we’ve covered it extensively as part of our 15 Worst Performing Bank Stocks in 2023 piece.
The second half of 2023 has also been a crucial earnings season for all firms and banks in particular. Earnings results of big banks such as Bank of America Corporation (NYSE:BAC), Morgan Stanley (NYSE:MS), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Company (NYSE:WFC) show that there has been a bifurcation along the regional and diversified bank lines. The big banks have met or surpassed analyst EPS estimates while regional banks such as KeyCorp (NYSE:KEY), Territorial Bancorp Inc. (NASDAQ:TBNK), and Truist Financial Corporation (NYSE:TFC) have lagged the earnings estimates. Additionally, regional bank stocks have been among some of the worst performing this year, as most of the stocks in our list of 10 Oversold Bank Stocks To Buy are those of regional banks.
August is shaping up to be another interesting month for the banking industry. Rating agency Fitch Ratings made history as August started after it downgraded U.S. government debt. As the rationale behind the move, the firm shared political uncertainty and difficulties in debt ceiling agreements in Congress as motivating factors but maintained that the U.S. has one of the strongest economies in the world. The firm was back in mid August as it warned that another downgrade to the U.S. banking sector might make it reevaluate ratings on the dozens of U.S. banks it covers, including industry heavy weights such as JPMorgan and Bank of America. The previous Fitch U.S. bank downgrade was in June, but it went relatively unnoticed. Fitch’s latest assessment came after Moody’s downgraded smaller U.S. banks in August and stressed that risks in the commercial real estate segment and a potential recession in the U.S. in 2024 can affect bank profitability and capital raising measures.
So, during this turmoil, you might be wondering what bank stocks are undervalued according to Wall Street analysts. We’ve made a list of some such stocks today with the notable ones being First Citizens BancShares, Inc. (NASDAQ:FCNCA), HDFC Bank Limited (NYSE:HDB), and Popular, Inc. (NASDAQ:BPOP).
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Our Methodology
To make our list of the most undervalued bank stocks to buy according to Wall Street analysts, we ranked stocks rated Buy or higher with their share price upside based on average analyst price targets.
Most Undervalued Bank Stocks To Buy According To Wall Street Analysts
11. Pinnacle Financial Partners, Inc. (NASDAQ:PNFP)
Share Price Upside: 13.86%
Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) is a Nashville, Tennessee based regional bank. It is one of the younger firms on our list since it was set up in 2000. The bank provides a standard range of banking services such as accounts, and it serves both individual and corporate customers. Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) beat analyst EPS estimate for its second quarter results by a wide margin of 91 cents and its average share price target is $78.22.
26 of the 910 hedge funds part of Insider Monkey’s Q2 2023 database had invested in the bank. Pinnacle Financial Partners, Inc. (NASDAQ:PNFP)’s largest investor in our database is Jonathan Bloomberg’s BloombergSen through a $51 million stake that comes via 904,937 shares.
Along with First Citizens BancShares, Inc. (NASDAQ:FCNCA), HDFC Bank Limited (NYSE:HDB), and Popular, Inc. (NASDAQ:BPOP), Pinnacle Financial Partners, Inc. (NASDAQ:PNFP) is an undervalued bank stock to buy according to analysts.
10. Preferred Bank (NASDAQ:PFBC)
Share Price Upside: 14.40%
Preferred Bank (NASDAQ:PFBC) is a regional bank that is headquartered in Los Angeles, California. It limits its customer base to high net worth individuals, businesses, and real estate firms among others. The shares are rated Buy on average and the bank beat analyst earnings per share (EPS) analyst estimates for its second quarter financials.
During the same time period, 11 of the 910 hedge funds part of Insider Monkey’s database had bought a stake in Preferred Bank (NASDAQ:PFBC). Out of these, the firm’s largest shareholder is Israel Englander’s Millennium Management since it owns 200,229 shares that are worth $11 million.
9. The PNC Financial Services Group, Inc. (NYSE:PNC)
Share Price Upside: 15.23%
The PNC Financial Services Group, Inc. (NYSE:PNC) is a regional bank that serves the needs of a diverse set of customers, which include retail customers, institutional customers, and others. Investment bank Morgan Stanley kept an Underweight rating for the shares in July, however, on average the stock is still rated as Buy.
Insider Monkey dug through 943 hedge funds for 2023’s June quarter and discovered that 52 had bought the bank’s shares. The PNC Financial Services Group, Inc. (NYSE:PNC)’s largest investor in our database is Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital courtesy of a stake worth $186 million.
8. SouthState Corporation (NASDAQ:SSB)
Share Price Upside: 17.33%
SouthState Corporation (NASDAQ:SSB) is a Florida based regional bank that provides accounts, loans, safety boxes, and other banking products. The bank’s stock is down 3.3% year to date, and it’s been facing a tough time in the earnings segment too since the bank has missed analyst EPS estimates for all four of its latest quarters.
By the end of this year’s second quarter, 16 of the 910 hedge funds part of Insider Monkey’s database had invested in SouthState Corporation (NASDAQ:SSB). Robert Joseph Caruson’s Select Equity Group is the biggest stakeholder, through a $55 million investment.
7. Credicorp Ltd. (NYSE:BAP)
Share Price Upside: 18.49%
Credicorp Ltd. (NYSE:BAP) is a Peruvian regional bank headquartered in Lima, Peru. It provides accounts, loans, brokerage services, investment banking products, and others. Credicorp Ltd. (NYSE:BAP)’s average share price target is $168.55, which makes the shares undervalued by roughly 18% based on the latest share price.
Insider Monkey scoured through 910 hedge fund portfolios and discovered that 19 had held a stake in the bank as of Q2 2023. Credicorp Ltd. (NYSE:BAP)’s largest investor in our database is John W. Rogers’ Ariel Investments through a $210 million investment that comes via 1.4 million shares.
6. Prosperity Bancshares, Inc. (NYSE:PB)
Share Price Upside: 19.66%
Prosperity Bancshares, Inc. (NYSE:PB) is a regional bank that offers accounts, mortgages, and other banking products. It missed analyst EPS estimates for the second quarter, but it benefited from greater loan balances and more fees.
15 of the 910 hedge funds surveyed by Insider Monkey for this year’s June quarter had invested in Prosperity Bancshares, Inc. (NYSE:PB). Ken Griffin’s Citadel Investment Group is the largest stakeholder among these since it owns a $120 million stake.
First Citizens BancShares, Inc. (NASDAQ:FCNCA), Prosperity Bancshares, Inc. (NYSE:PB), HDFC Bank Limited (NYSE:HDB), and Popular, Inc. (NASDAQ:BPOP) are some bank stocks that are undervalued.
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Disclosure: None. 11 Most Undervalued Bank Stocks To Buy According To Wall Street Analysts is originally published on Insider Monkey.