Zion and Western Alliance stock declines overdone, RBC says

Investing.com - RBC Capital Markets believes recent stock declines for Zion Bancorporation and Western Alliance Bancorporation are excessive, despite concerns about suspected borrower fraud affecting both institutions. The sentiment aligns with recent data from InvestingPro, showing that several regional banks maintain strong fundamentals despite market volatility.

The regional banking sector has experienced significant pressure, with the KRE regional banking ETF falling approximately 8% over two days as third-quarter reporting season began. RBC attributes this decline to specific events at certain banks rather than industry-wide fundamental problems.

Despite the volatility, RBC reports encouraging core fundamental trends among regional banks that have reported earnings thus far, including First Horizon, Synovus Financial, and Home Bancshares. These institutions have demonstrated sequential loan growth, positive margin trends, and controlled expenses. First Horizon, trading at a P/E ratio of 12.7 with a 3% dividend yield, has maintained dividend payments for 15 consecutive years, while eight analysts have recently revised their earnings estimates upward.

Credit trends remain "very healthy" according to RBC, with no management commentary suggesting erosion in core credit metrics. The firm notes that regional banks today maintain strong reserves for potential losses and have increased capital levels since 2023. First Horizon exemplifies this strength with a "GOOD" Financial Health Score according to InvestingPro, which offers comprehensive analysis of over 1,400 US stocks through its Pro Research Reports.

RBC views the recent sell-off as "an opportunity to add exposure in quality bank stock names," specifically mentioning First Horizon, Western Alliance, and Zion Bancorporation as banks where stock price declines appear "overdone." First Horizon’s stock has declined over 10% in the past week, yet InvestingPro analysis suggests the stock is currently trading near its Fair Value, with analysts setting price targets up to $27 per share.

In other recent news, First Horizon National reported third-quarter earnings that surpassed analyst expectations, driven by stronger revenue and a negative loan loss provision. Despite these positive results, the company’s stock experienced a decline following CEO Bryan Jordan’s comments about potential acquisition plans starting in 2026. This strategic direction has prompted various analyst reactions, with TD Cowen lowering its price target to $24 while maintaining a Hold rating. Similarly, Evercore ISI downgraded the stock from Outperform to In Line and reduced its price target to $20, citing management’s openness to acquisitions as a factor. Jefferies also adjusted its price target to $25, maintaining a Buy rating and noting the bank’s reaffirmation of its full-year 2025 guidance. Wells Fargo reiterated its Equal Weight rating with a $23 price target, interpreting the bank’s recent comments as a shift towards becoming a potential buyer rather than a seller. DA Davidson maintained a Neutral rating with a $24 price target, highlighting the solid quarterly results but noting investor focus on strategic comments. These developments reflect a mixed analyst sentiment in response to First Horizon’s recent announcements.

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