Comerica and Western Alliance Added to Wedbush’s Best Ideas List Following Fed Pivot

Following the recent Federal Reserve rate cut, Wedbush analysts have added Comerica and Western Alliance Bancorporation to their Best Ideas List. The firm has also upgraded several other banks, including Banc of California, Columbia Banking System, Prosperity Bancshares, and Regions Financial Corporation.

In a Tuesday note, Wedbush analysts expressed optimism about the banking sector, stating, “We turned more constructive on banks coming out of July’s earnings season as the rate backdrop became more clear and the Fed is putting its best foot forward to engineer a soft landing.”

The analysts had adopted a more cautious stance on the banking sector during the summer of 2022, when the Fed began increasing rates. Since that time, the regional bank index has only risen by 9%, while the S&P 500 has experienced a 50% increase.

While there are still concerns about a possible recession, particularly regarding consumer health highlighted by major retailers, Wedbush’s primary scenario suggests that the Fed might successfully guide the economy to a soft landing. The note further explains, “If our base case holds, we foresee banks being positioned to adopt a more aggressive strategy, as lower short-term rates and a more normalized yield curve create a favorable operating environment across multiple fronts.”

Comerica was upgraded to Outperform from Neutral, as the firm noted it is the most liability-sensitive bank in their coverage. They expect that Comerica will benefit from the lower rate environment, which may enable share repurchases to resume in late 2023 or early 2024.

Western Alliance Bancorporation, being asset-sensitive, is also projected to benefit from lower rates, which are expected to lower deposit costs and increase mortgage origination volumes. Analysts at Wedbush are particularly encouraged by WAL’s valuation, which is trading at a multiple of 10.1x compared to the peer average of 11.0x, based on estimated earnings for 2025.