Case Study: First Republic Bank (FRC) stock according to high performing analysts
Key Points
Performance
First Republic Bank shares fell by 19.40% this week, pushing their year-to-date gains down to -76.42%. This compares poorly to the S&P 500 which is up by 2.92% on a year-to-date basis thus far.
Event & Impact
First Republic Bank is under scrutiny by investors and analysts alike as another regional bank that could potentially fail in the near-term. Thus far, in recent weeks, there have been 2 regional bank failures, resulting in significant share price losses. Investors have been fleeing the financial sector in recent weeks as fears of contagion rise.
Noteworthy News:
First Republic is known for having a high net worth clientele, which has caused fears of a bank run (since FDIC insurance only covers the first $250,000.00 of deposits). FRC has received $70 billion in funding this week from rival firms to help support its liquidity. Yet, its shares fell by 32.80% on Friday as fears of its survival remain in place.
Nobias Insights
63% of recent articles published by credible authors focused on First Republic Bank shares offer a “bullish” bias. The credible Wall Street analyst covering FRC believes shares are likely to rise in value. The average price target applied to FRC by this credible analyst is $131.00, which implies upside potential of approximately 470% relative to the stock’s current share price of $22.97%.
Bullish Take Bill Carcache of Wolfe Research, a 4-star Nobias rated analyst, said, “Wolfe Research analyst Bill Carcache lowered the firm's price target on First Republic to $131 from $133 and keeps an Outperform rating on the shares.
Bearish Take Harrison Miller, a Nobias 4-star rated author, said, “S&P lowered FRC stock to a speculative-grade BB+ from its previous A- rating. Fitch gave First Republic a BB grade, down from A-, and put the bank on negative rating watch.”
FRC Mar 2023
In the wake of the Silicon Valley Bank and Signature Bank failures this week, there has been enormous negative volatility across the financial sector. Investors are running for the hills, hoping to avoid the next regional bank that goes under.
There has been speculation that First Republic Bank (FRC) is potentially in trouble in that regard; however, it also bears noting that FRC has received roughly $70 billion in emergency funding this week and the company’s CEO continues to harp upon his operation’s high quality. Regardless, FRC shares are down by 76.42% on a year-to-date basis. They’re down by 19.40% this week, alone.
Yet, despite this weakness, the credible authors and analysts that the Nobias algorithm tracks remain bullish on this embattled stock.
Bearish Nobias Credible Analysts Opinions:
Luc Olinga, a Nobias 4-star rated author, broke down First Republic’s business operations in an article published at The Tribune this week. He said, “Founded in 1985, the bank offers private personal banking, private business banking and private wealth management. It's present in eight states: California, Oregon, Massachusetts, Florida, Connecticut, New York, Wyoming and Washington.”
“FRC has said that its client base is more diverse than that of Silicon Valley Bank, which relied heavily on startups and venture-capital firms in its client base,” Olinga continued. “As of Dec. 31, 2022,” he said, “First Republic Bank had $212.6 billion in assets, according to a news release. Its 2022 revenue was $5.9 billion, up 16.5% from 2021, while the bank recorded 2022 net income of $1.7 billion, up 12.7%.”
But, despite this fundamental growth, Olinga highlighted concerns that First Republic, which is known for catering towards wealthy clientele, faces outsized risks of client withdrawals due to the large mount of high net worth individuals that it has as depositors.
“The two credit-rating companies are concerned about First Republic Bank's amount of uninsured deposits, those accounts that exceed the $250,000 FDIC limit. Holders of these accounts might become concerned and decide to withdraw their money, creating a run on the bank,” Olinga said.
Jim Hoft, a Nobias 4-star rated author, published an article at The Gateway Pundit this week showing pictures of clients lined up at a First Republic Bank location in Brentwood, a wealthy suburb of Los Angeles, signaling yet another bank run.
Harrison Miller, a Nobias 4-star rated author, covered FRC’s incredible volatility in an article that he published at Investors.com this week. On Friday morning, Miller wrote, “First Republic Bank tumbled in early trade, dragging regional banks down, after suspending its dividend late Thursday. The San Francisco-based outfit received a $30 billion rescue deposit from America's 11 largest banks on Thursday.” He said, “The company says it plans tp [sic] focus on reducing borrowings and evaluating the composition and size of its balance sheet.”
Looking at recent share price moment, Miller stated, “Shares bolted 10% higher Thursday afternoon on news of a $30 billion rescue plan to bolster Federal Republic's liquidity.” But, after news of the dividend cut, shares of FRC opened up down 18% on Friday morning.
Regarding the $30 billion rescue deposit, Miller said, “Per the plan, Citigroup (C), Bank of America (BAC), Wells Fargo (WFC) and JPMorgan (JPM) will each make a $5 billion uninsured deposit to First Republic. Goldman Sachs and Morgan Stanley will both make a $2.5 billion uninsured deposit. And BNY Mellon (BK), U.S. Bancorp (USB), PNC Financial (PNC), Truist (TFC) and State Street (STT) will each make an uninsured deposit of $1 billion.”
‘"This action by America's largest banks reflects their confidence in First Republic and in banks of all sizes, and it demonstrates their overall commitment to helping banks serve their customers and communities," the institutions wrote in the joint release,” Miller added. He also quoted FRC’s CEO, Jim Herbert, who said,"First Republic's capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks," in the funding announcement.
Miller went on to highlight First Republic’s balance sheet and credit rating concerns, stating, “On Wednesday, ratings agencies S&P Global and Fitch downgraded First Republic, citing liquidity and funding risks.” “S&P lowered FRC stock to a speculative-grade BB+ from its previous A- rating. Fitch gave First Republic a BB grade, down from A-, and put the bank on negative rating watch,” he continued.
Miller also said, “On Monday, Moody's announced it was reviewing First Republic and five other regional banks for potential downgrades.” Lastly, he put a spotlight on Treasury Secretary Janet Yellen’s testimony to Congress regarding the strength of the U.S. financial system this week. He wrote, “In her testimony, Yellen told Congress "that our banking system remains sound, and that Americans can feel confident that their deposits will be there when they need them," according to prepared remarks.”
Huileng Tan, a Nobias 4-star rated author, published a report this week focused on S&P Global’s rating cut and commentary on First Republic in light of recent headlines surrounding a potential run on the bank and the firm’s outlook for FRC moving forward.
Tan quoted S&P Global Ratings analysts Nicholas Wetzel and Rian Pressman who said, "We believe the risk of deposit outflows is elevated at First Republic Bank despite the actions of federal banking regulators and the bank actively increasing its borrowing availability to mitigate risk associated with the bank failures over the last week.”
Bullish Nobias Credible Analysts Opinions:
Shanti Rexaline, a Nobias 4-star rated author, published a report this week which highlighted bullish tweets by Jim Cramer centered around First Republic Bank. Rexaline wrote, “Celebrity stock picker and CNBC host Jim Cramer tweeted early Tuesday that First Republic is a bargain buy and he was surprised that a big broker wasn't interested in it.”
"Fear is so palpable that no one seems to want to step up and buy a very good bank like First Republic which can probably be had for one fourth of what it was worth three months ago," Cramer said "It has an amazing client base. Surprised a big broker isn't interested,” the CNBC host added.
In a separate article published on Friday morning, Rexaline highlighted commentary provided by hedge fund manager, Bill Ackman, who also weighed in on the First Republic Bank saga. “Ackman noted that First Republic is a well-managed, well-capitalized, high-service bank with good assets and it is loved by its clients. First Republic is no SVB, he said, referring to the just-collapsed Silicon Valley Bank,” Rexaline wrote. “It is caught up in a bank run due to no fault of its own. It does not deserve to fail,” he added.
Rexaline said, “He (Ackman) also reiterated that he has no long or short positions in the banking sector. He suggested that his interest in the issue stemmed from his extreme concern about the financial contagion risk spiraling out of control and causing severe economic damage and hardship.”
FRC shares are down by 82.06% during the last month. And with this in mind, investors are wondering whether or not the risk is worth the reward when it comes to these beaten down shares.
There is only 1 credible Wall Street analyst who covered FRC shares recently; however, that individual is bullish on the stock. That analyst is Bill Carcache of Wolfe Research, a 4-star Nobias rated analyst, who has a $131.00/share price target on FRC shares.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
According to a recent report published by The Fly on the Wall, “Wolfe Research analyst Bill Carcache lowered the firm's price target on First Republic to $131 from $133 and keeps an Outperform rating on the shares. The analyst sees "meaningful opportunities" for generating alpha through stock selection across mid-cap banks and consumer finance. Carcache sees value in pairing bank names with higher earning asset betas better earning asset repricing profiles, lower deposit betas, greater liquidity, and more excess capital against those at the other end of the spectrum. However, it is "too early to turn bullish" on card issuers, says Carcache, who expects further relative underperformance given their outsized exposure to the low-end consumer.” This is his most recent FRC update (as of 3/17/2023).
Overall bias of Nobias Credible Analysts and Bloggers:
63% of recent articles published on FRC shares by the credible authors that the Nobias algorithm tracks have expressed a “bullish” bias towards shares.
Currently FRC shares trade for $22.97. Therefore, Carcache’s price target represents potential upside of approximately 470%.
Disclosure: Nicholas Ward has no FRC position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.