On Monday, Barclays adjusted its outlook on shares of Western Alliance (NYSE:WAL) Bancorporation (NYSE:WAL), reducing the price target to $105 from the previous $110, while maintaining an Overweight rating on the shares. The adjustment comes in the wake of the company's recent earnings report, which fell short of both consensus and Barclays' expectations.
Western Alliance reported operating results of $1.81 per share, which was $0.25 below the consensus forecast and $0.11 under Barclays' estimate. This shortfall was attributed to significantly higher expenses related to earnings credit rate (ECR), despite a rise in deposit growth. The combined net interest income (NII) and ECR expenses negatively impacted Barclays' model by $0.15.
However, the bank did see some positive developments with core fee income exceeding expectations, contributing a $0.06 benefit to Barclays' estimates. On the flip side, non-ECR expenses also rose, with an $0.08 detriment to the estimates, primarily due to increased salaries and data costs.
Barclays noted that management emphasized on the earnings call that NII net of ECR is expected to increase moving forward. This is anticipated as a result of balance sheet growth and a decline in ECR rates. Reflecting these factors and the latest guidance, Barclays has revised its EPS estimates for Western Alliance to $7.19, $9.25, and $11.51 for fiscal years 2024, 2025, and 2026, respectively, down from the previous estimates of $7.31, $9.77, and $12.73.
The new price target of $105 by Barclays reflects these updated earnings projections and the recent performance of Western Alliance Bancorporation.
In other recent news, Western Alliance Bancorporation reported a robust third-quarter performance. The bank's earnings per share (EPS) were $1.80, accompanied by a substantial deposit growth of $1.8 billion and loan growth of $916 million.
Despite a minor compression in net interest margin, a 25% increase in net interest income was observed. Moreover, the bank saw a significant rise in mortgage warehouse deposits, contributing to higher earnings and bolstered customer relationships.
In terms of future developments, the bank anticipates fourth-quarter loan growth at approximately $1.25 billion, with a projected decrease in deposits by $2 billion due to seasonal outflows. Management also expects a 3% decrease in net interest income next quarter, while non-interest income is projected to increase by 8-12%.
Finally, Western Alliance Bancorporation's strategic focus on diversifying its loan portfolio and maintaining strong customer relationships has positioned it favorably for the future. With clear guidance for the upcoming quarters and an emphasis on asset quality and capital management, the bank continues to navigate the financial landscape.
InvestingPro Insights
Western Alliance Bancorporation's recent financial performance and market position offer additional context to Barclays' analysis. According to InvestingPro data, the company's market capitalization stands at $9.33 billion, with a P/E ratio of 14.51, suggesting a relatively modest valuation compared to its earnings.
Despite the earnings miss highlighted in the article, WAL has demonstrated strong financial performance in several areas. The company's revenue growth of 12.72% over the last twelve months and an impressive operating income margin of 39.17% indicate robust operational efficiency. These figures align with the InvestingPro Tip that WAL has been profitable over the last twelve months.
Notably, WAL has shown remarkable stock performance, with a 107.57% price total return over the past year and a 50.49% return in the last six months. This aligns with the InvestingPro Tip highlighting WAL's high return over the last year and the large price uptick over the last six months.
While Barclays has slightly lowered its price target, it's worth noting that the current InvestingPro Fair Value for WAL stands at $100.53, which is close to Barclays' new target of $105. This suggests that despite the recent earnings miss, there may still be potential upside for the stock.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Western Alliance Bancorporation, providing a deeper understanding of the company's financial health and market position.
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