BofA update shows where active managers are putting money
Investing.com - Keefe, Bruyette & Woods (KBW) has identified a potential re-rating opportunity for bank stocks involved in recent merger and acquisition deals, according to a new research report from the firm.
KBW analyst Catherine Mealor noted that acquirers in the firm’s bank coverage universe with high levels of fair value accretion currently trade at 9.4x 2026 estimated earnings per share, representing a 10% discount to peers at 10.3x 2026 estimated EPS. This valuation gap appears particularly interesting when considering that many of these banks maintain strong fundamentals, as evidenced by InvestingPro data showing consistent dividend growth and robust returns.
The research firm believes this discount is excessive as the dynamics around fair value accretion differ from previous cycles, with less risk of an earnings cliff compared to pre-Current Expected Credit Loss (CECL) deals. KBW points out that acquired loan books are being marked at approximately 7.3% on average, only about 20-40 basis points higher than current new origination rates.
KBW expressed a positive bias toward bank deals announced in 2024/2025, which it believes will deliver improved net interest margins, higher profitability, and above-average EPS growth. The firm rates UMB Financial (NASDAQ:UMBF), Old National Bancorp (NASDAQ:ONB), SouthState (NASDAQ:SSB), Seacoast Banking (NASDAQ:SBCF), Renasant (NASDAQ:NYSE:RNST), WesBanco (NASDAQ:WSBC), and First Busey (NASDAQ:BUSE) all as Outperform.
The report also highlighted that banks with high levels of fair value accretion, including Columbia Banking System (NASDAQ:COLB), Atlantic Union (NYSE:AUB), and Brookline Bancorp (NASDAQ:BRKL)/Berkshire Hills Bancorp (NYSE:BHLB), face a higher bar on execution risk but have the most significant opportunity to re-rate as deals close and are executed. For deeper insights into these banks’ valuations and comprehensive financial analysis, investors can access detailed Pro Research Reports available on InvestingPro, covering over 1,400 US stocks with expert analysis and actionable intelligence.
In other recent news, SouthState Corporation has announced the issuance of $350 million in subordinated notes, as detailed in an 8-K filing with the Securities and Exchange Commission. These notes, due in 2035, will initially carry a 7.000% fixed interest rate, transitioning to a floating rate in 2030. This financial maneuver is part of SouthState’s strategy to manage capital and financing needs. Additionally, SouthState has entered an underwriting agreement with Morgan Stanley (NYSE:MS), Piper Sandler, and Keefe, Bruyette & Woods for the sale of these notes.
Analysts have been active in their assessments of SouthState. Keefe, Bruyette & Woods maintained an Outperform rating, citing strong profitability metrics and successful integration of the Independent Bank (NASDAQ:INDB) of Texas. Meanwhile, Jefferies initiated coverage with a Buy rating and a $110 price target, highlighting SouthState’s strong market presence in the Southern U.S. and robust credit quality. However, Citi adjusted its price target from $123 to $113, maintaining a Buy rating, due to recent market performance and financial developments. These moves reflect ongoing confidence in SouthState’s strategic initiatives and financial health.
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