First Citizens Bancshares: A Bull Emerges on Wall Street

Introduction

First Citizens Bancshares has recently gained the attention of Wall Street as it continues to integrate Silicon Valley Bank into its business. Analysts at Wedbush Securities have initiated coverage of the bank with an Outperform rating and a price target of $1,700. This positive sentiment follows a bullish initiation from J.P. Morgan last month.

A Growing Presence on Wall Street

First Citizens' journey into the spotlight began nearly two years ago with its acquisition of CIT Group. In March of this year, it further expanded by acquiring Silicon Valley Bank from the Federal Deposit Insurance Corp, effectively quadrupling in size over just 18 months.

Bucking the Bearish Trend

While other banks may be experiencing bearish sentiments on Wall Street, First Citizens remains a standout. FactSet reports that out of the 10 analysts surveyed who cover the stock, eight have given it Buy-equivalent ratings, with only two remaining at Hold. The average price target of $1,719.70, which is almost 30% above recent trading levels, indicates that even the more cautious analysts see great promise in First Citizens.

The Bull Case

The optimism surrounding First Citizens stems from its ability to leverage the successful elements of Silicon Valley Bank at favorable terms obtained through the FDIC. If venture-capital activity, which is Silicon Valley Bank's specialty, rebounds, First Citizens stands to benefit significantly. However, even if the tech industry experiences ongoing challenges, analysts are still confident in First Citizens' solid credit quality and its track record of successful acquisitions.

Looking Ahead

David Chiaverini, an analyst at Wedbush, expressed his belief that while there are no guarantees when it comes to the integration of Silicon Valley Bank, the underlying components of the bank from Silicon Valley could serve as a strong growth driver in the years to come, especially in better economic conditions.

This positive outlook from analysts highlights the exciting potential that First Citizens Bancshares holds, making it a compelling choice for investors seeking growth and innovation in the banking sector.

The Appeal of First Citizen: A Safe Haven During Uncertain Times

In the midst of a recessionary atmosphere, where banks are being met with skepticism on Wall Street, First Citizen stands out as a potential safe haven. Chiaverini, a trusted source, not only supports the story but also highlights the attractiveness of First Citizen's valuation. With shares trading at 6.9 times 2024 earnings estimates, slightly behind industry peers at seven times, there is room for upward potential. Moreover, the fact that shares are trading just marginally above tangible book value adds to the appeal, providing a cushion in case of a recessionary scenario.

However, the current market sentiment towards banks has been weak due to concerns about rising interest rates. Short interest in the SPDR S&P Regional Banking exchange-traded fund's (KRE) shares outstanding reportedly sits at 37%, surpassing levels seen during the banking crisis in March. The fear surrounding higher interest rates has cast doubts on the future of banks, leaving investors on edge.

Nicholas Colas, co-founder of DataTrek Research, highlights the potential risks faced by U.S. banks if higher yields result in a recession. Loan losses would likely increase, and the value of a bank's bond portfolio could be negatively impacted. This could necessitate raising additional capital or selling assets at distressed prices. These possibilities are not mutually exclusive and could have significant ramifications for the banking sector.

Despite the prevailing caution surrounding banks, First Citizens emerges as a beacon of stability amid uncertainty. Its solid valuation and potential downside support in a recessionary environment make it an attractive choice for investors seeking refuge from volatility.