Comerica and Western Alliance added to Wedbush’s Best Ideas list after Fed pivot By Investing.com

Investing.com — Following the Federal Reserve’s rate cut last week, analysts at Wedbush added Comerica (NYSE: ) and Western Alliance (NYSE: ) Bancorporation to their Best Ideas List.

The firm has also upgraded several banks, incl Bank of California (NYSE:), Columbia Banking System (NASDAQ: ), Prosperity Bancshares (NYSE: ) and Regions Financial Corporation (NYSE: ).

“We have become more constructive on banks coming out of the July earnings season as the rate context has become clearer and the Fed is doing its best to project a soft landing,” Wedbush analysts said in a note. Tuesday’s note.

They became wary of the banking sector in the summer of 2022 when the Fed started raising rates. Since then, the regional banking index (KRX) is up just 9%, compared to a 50% increase in .

While a recession is still possible, especially given recent concerns about consumer health from major retailers, Wedbush’s base case is that the Fed may be able to steer the economy toward a soft landing.

“To the extent that our base case is correct, we anticipate that banks should be in a stronger position to pivot to a more offensive position as lower short-term rates and a more normalized yield curve would should create a more ideal operating environment on multiple fronts,” the note states.

Wedbush upgraded Comerica shares to Outperform from Neutral, highlighting its most liability-sensitive bank position in their coverage. The firm anticipates that Comerica will benefit from the lower rate environment, which could lead to a resumption of share buybacks in the fourth quarter of 2023 or early 2024.

Western Alliance Bancorporation, while asset-sensitive, also expects to gain from lower interest rates through lower deposit costs and increased mortgage loan volume.

WAL’s low valuation compared to its peers also encouraged Wedbush analysts. The stock trades at a multiple of 10.1x, compared to the peer average of 11.0x, based on estimated 2025 earnings.