Banks have done well in general since the middle of 2021, but banks with strong leverage to loan growth in 2022 and the opportunity to drive double-digit pre-provision profit growth are doing even better. PacWest (PACW) was one of the banks I was bullish on back in the summer based on that undervalued profit growth leverage for ’22-’23, and the shares have since climbed another 20% or so, beating its peer group by around 500bp over that period.
PacWest doesn’t offer above-average asset sensitivity (and the bank’s internal deposit beta projections may be too optimistic), and I do think a capital raise (likely subordinated debt and/or preferred equity) is possible, but I still like the growth leverage story, and I believe high-single-digit long-term core earnings growth can support double-digit share price appreciation from here.
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