Piper Sandler revealed in a research note that its latest survey shows most investors view bank stocks as undervalued and expect a positive outlook for the sector.
In a survey of 574 bank investor clients, with a 13% response rate, 64% of respondents said they believe bank stocks are undervalued, while 32% said they are fairly valued. Only 4% of investors considered bank stocks to be overvalued.
Piper Sandler noted, “We were a bit surprised that only 4% of the responses suggested that bank stocks were overvalued.”
Analysts believe the positive sentiment toward the sector seems to be driven by expectations that the Federal Reserve will begin cutting interest rates soon, which could benefit banks, particularly those with liability-sensitive balance sheets.
Over a third of the respondents favored banks that fall into this category.
The survey also found that credit risk remains the top concern for investors, with 54% citing it as the biggest risk to bank stocks, up from 44% in 2023.
Interest rate concerns declined from 38% last year to 20% this year. Regulatory burdens were a growing concern, increasing from 12% to 19%.
In terms of regional preferences, 59% of investors are said to have shown a preference for smaller banks located in the Southeast and Southwest regions of the U.S.
The Piper Sandler survey also revealed that 88% of respondents expect bank mergers and acquisitions (M&A) to pick up in 2025, with 34% predicting a dramatic acceleration in activity.
Looking ahead, Piper Sandler said 85% of investors expect bank stocks to rise over the next 12 months, with 43% predicting gains between 10-20%.