Citi has updated its outlook on Western Alliance (NYSE:WAL) Bancorporation (NYSE: WAL), raising the price target from $98.00 to $102.00, while reaffirming a Buy rating on the shares.
The adjustment follows Western Alliance's quarterly results, which aligned closely with market projections. The focus, however, shifted to concerns regarding deposit costs linked to Earnings Credit Rate (ECR) and the distinctions between adjusted and GAAP Net Interest Margin (NIM), which impacted the stock's performance.
The bank's forecast of a seasonal deposit reduction in the fourth quarter of 2024 caught investors off guard. Western Alliance traditionally experiences about 120% of its annual deposit growth within the first nine months of the year, followed by a 20% decrease in the fourth quarter. Despite this pattern, Citi projects a more consistent loan growth for the company in 2025, estimating a $6 billion increase.
Citi anticipates that the bank's Generally Accepted Accounting Principles (GAAP) expenses will decrease in the upcoming year. This expectation is based on the prediction of a 22% reduction in ECR deposit costs in 2025. The bank is also expected to achieve significant operating leverage due to lowered expenses, even with anticipated increases in compensation and investments in infrastructure.
In other recent news, Western Alliance Bancorporation reported steady third-quarter performance, with earnings per share (EPS) of $1.80, substantial deposit growth of $1.8 billion, and loan growth of $916 million.
Despite a slight compression in net interest margin, the bank noted a 25% increase in net interest income. In light of these developments, Barclays adjusted its outlook on Western Alliance, reducing the price target to $105 but maintaining an overweight rating on the shares.
The adjustment followed an earnings report that fell short of both consensus and Barclays' expectations, largely due to higher expenses related to earnings credit rate (ECR). Despite this, the bank did see core fee income exceed expectations. Western Alliance anticipates fourth-quarter loan growth at approximately $1.25 billion, with a projected decrease in deposits by $2 billion due to seasonal outflows.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Citi's optimistic outlook on Western Alliance Bancorporation (NYSE:WAL). The company's market capitalization stands at $9.33 billion, with a price-to-earnings ratio of 14.51, suggesting a relatively attractive valuation compared to industry peers. This aligns with Citi's bullish stance and increased price target.
InvestingPro Tips highlight that Western Alliance has raised its dividend for 5 consecutive years, demonstrating a commitment to shareholder returns. This is particularly noteworthy given the bank's impressive 107.57% price total return over the past year, as reported by InvestingPro Data. The substantial 50.49% price return over the last six months further supports Citi's positive view on the stock's momentum.
While Citi projects consistent loan growth and improved financial performance, it's worth noting that InvestingPro Tips indicate that 4 analysts have revised their earnings downwards for the upcoming period. This contrasting perspective underscores the importance of comprehensive analysis when evaluating investment opportunities.
For investors seeking a deeper dive into Western Alliance's financials and prospects, InvestingPro offers 8 additional tips, providing a more comprehensive view of the company's strengths and potential challenges.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.