7 top regional bank stocks to buy

Analysts expect big things from bank stocks.

  • By Wayne Duggan,
  • U.S. News & World Report
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Bank stocks have been on a tear since the November U.S. elections. Analysts are expecting the combination of aggressive government stimulus, an economic rebound and a resumption of bank buybacks to propel bank stocks higher. But while the U.S. megabank stocks are getting a lot of love, the Goldman Sachs analyst team recently highlighted seven regional bank stocks that are poised for major upside as well. These regional banks may not grab as many headlines as mega-cap bank stocks, but they could make their investors just as much money in 2021, according to Goldman.

Citizens Financial Group

Analyst Ryan Nash is projecting Citizens Financial (CFG) earnings per share will nearly double from $2.19 in 2020 to $4.15 in 2021. Goldman's 2021 EPS estimate is more than 40% above consensus Wall Street expectations, suggesting Citizens could report some major earnings beats over the next few quarters. Shares trade at just 9.4 times Nash's forward earnings estimate, even after the stock has rallied about 64% in the past six months. Citizens shares even pay a sizable 3.9% dividend. Goldman Sachs has a "buy" rating and $43 price target for CFG stock.

First Horizon Corp.

First Horizon (FHN) has an attractive combination of a profitable business, a fee-heavy model and an appealing valuation. Low interest rates are a margins headwind in the near term, but First Horizon's countercyclical fixed income and mortgage warehouse lending businesses could help offset some of those pressures. The company's Iberiabank merger also provides opportunities for geographical diversification and organic growth. The stock trades at just 9.6 times Nash's 2022 EPS estimates, suggesting shares are attractively valued for long-term investors. First Horizon also pays about a 4.1% dividend. Goldman Sachs has a "buy" rating and $16.50 price target for FHN stock.

Regions Financial Corp.

Regions Financial (RF) shares are up 76% in the past six months, but Nash says the rally is far from over. He says the bank's hedging program has protected its margins better than many other banks, mitigating risk in the event of another economic downturn. In addition, Regions was more conservative with its reserve building during the worst of the 2020 crisis, which should allow for more aggressive reserve releases in 2021. Finally, Nash says Regions is one of the few regional banks with relatively stable costs. Goldman Sachs has a "buy" rating and $18.50 price target for RF stock.

KeyCorp

Nash says KeyCorp (KEY) is one of the best-positioned banks to generate positive operating leverage in 2021. In addition, he says KeyCorp is one of the few regional banks that could see year-over-year expenses decline this year. The stock is up nearly 60% over the past six months, but still trades at just 9.1 times Goldman's 2021 EPS estimate. That Goldman estimate is 45% higher than the consensus Wall Street projections, implying some major earnings surprises ahead. KeyCorp shares also pay a 4.1% dividend. Goldman Sachs has a "buy" rating and $19 price target for KEY stock.

Signature Bank

Signature Bank (SBNY) is the smallest bank among Goldman's top regional bank stock picks. Its market cap is just $8.6 billion, about 2% the size of JPMorgan Chase & Co. (JPM). It also has one of the most narrow markets, serving privately held businesses in New York City, Connecticut and San Francisco. Nash is projecting 18.4% EPS growth in 2021 and another 19.1% growth in 2022. The stock trades at an extremely attractive valuation at just 10.7 times Goldman's projected 2022 earnings estimate. Goldman Sachs has a "buy" rating and $174 price target for SBNY stock.

Truist Financial Corp.

Truist Financial (TFC) has significant exposure to the mid-Atlantic and Southeastern U.S. regions, two of the faster-growing areas of the country. The bank also has a diversified business that includes leading positions in middle-market investment banking, insurance brokerage and mortgage banking. Truist is implementing a $1.6 billion cost-cutting initiative that could significantly increase profitability. Nash is projecting 12.1% EPS growth in 2021. The stock trades at just 11.8 times Goldman's forward earnings estimate and pays a 3.5% dividend. Goldman Sachs has a "buy" rating and $57 price target for TFC stock.

Fifth Third Bancorp

Nash recently upgraded Fifth Third Bancorp (FITB) and says there are several reasons to like the stock in 2021. First, he says the bank's cost-cutting efforts will start to pay off in the second half of the year by boosting operating leverage. Second, Nash says Fifth Third has more reserves than many of its peers despite roughly similar loss levels, giving the bank excess financial flexibility. Finally, Nash says the bank's potential for 13% return on average tangible common shareholders' equity is worthy of a premium stock valuation. Goldman Sachs has a "buy" rating and $35 price target for FITB stock.

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