Investments during the pandemic have set these banks up for growth
The prospect of rising interest rates and more hawkish monetary policy is viewed as a bullish sign for financial stocks. However, many of the “big banks” look to have a lot of growth already priced in. On the other end of the spectrum, financial technology (fintech) companies are having a disruptive effect on the industry, but fintech stocks have been pushed down in the broader tech correction.
That brings us to regional banks. These banks offer many of the same services as the big banks but are restricted to a specific geographic territory. Super regionals are simply regional banks that have a larger geographic base and therefore a larger asset base.
With that said, many of these banks understood the need to make significant investments in technology and artificial intelligence that would allow them to compete with the national banks, while at the same time offering a more conservative choice for consumers who may not be ready to embrace fintech.
And with earnings season ramping up, we’re offering you three super-regional banks that look like solid investment options in a rising interest rate environment.
1. Huntington Bancshares
Huntington Bancshares (NASDAQ:HBAN) is slated to report earnings on Jan. 21. The bank is expected to post earnings per share (EPS) of 37 cents on revenue of $1.69 billion. Both the EPS number (37%) and the revenue number (36.4%) would show strong year-over-year (YOY) growth.
Late in 2021, Huntington absorbed TCF Financial (NASDAQ:TCF). This is expanding the bank’s footprint. At that time, we didn’t find HBAN stock to be a particularly compelling choice as short interest was high with merger-related expenses expected to hit the books.
However, with the anticipation of a strong earnings report, it looks like a better time to buy HBAN stock which just got a bullish rating from UBS Group. The analyst firm initiated coverage on HBAN stock with a price target of $21, a 22% increase from its price at the time of this article.
2. KeyCorp
The Cleveland, Ohio-based super-regional bank does business in over 15 states and had over 1,050 branches as of 2021. However, as more consumers demand digital banking services that number was expected to decrease by approximately 7%.
In terms of innovation, KeyCorp (NYSE:KEY) recently acquired XUP Payments, a B2B focused digital platform. This will be a key step in allowing the bank to deliver digital innovation at scale. In 2021, the bank also acquired AON Strategies to beef up its data analytics capabilities.
KeyCorp posted its fourth-quarter earnings on Jan. 20 with earnings coming in at 64 cents per share on revenue of $1.95 billion. This topped analysts’ expectations for an EPS of 56 cents on revenue of $1.8 billion. Although the stock at the time of this writing is trading at the upper end of its 52-week range, the bank received a bullish rating from UBS Group which initiated its coverage on the bank with a Buy rating and a price target of $32.
KeyCorp has increased its dividend for the last 11 years and has logged three-year dividend growth of over 32%.
3. M&T Bank
The last of the super-regional banks on our list is M&T Bank (NYSE:MTB) which is coming off a strong earnings report. The bank beat EPS estimates by 13 cents ($3.37 compared to a forecast for $3.24) on revenue of $1.51 billion. That was a 2% beat from analysts’ expectations for $1.47 billion. Those results, however, factored in expenses related to the bank’s proposed acquisition of People’s United Financial.
M&T Bank has recorded an average GAAP EPS growth of 5.8% over the past 20 years, easily outpacing its peers over that same period. The bank also pays a quarterly dividend that currently totals $4.80 a year and the company has recorded three-year dividend growth of 26.76%.
And like the other two stocks on this list, MTB stock just got a boost from UBS Group which initiated coverage on the bank with a buy rating and a $212 price target, which would give investors 18% growth on top of the bank’s dividend.