3 Financial Stocks Wall Street Believes Will Rally by More Than 65% The Federal Reserve's resolution to tame the surging inflation by increasing interest rates bodes well for financial stocks as a rising interest rate environment helps them grow their revenues. Wall...
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The Federal Reserve's resolution to tame the surging inflation by increasing interest rates bodes well for financial stocks as a rising interest rate environment helps them grow their revenues. Wall Street analysts expect financial stocks Interactive Brokers (IBKR), PacWest Bancorp (PACW), and Signature Bank (SBNY) to rally more than 65% in the near term. So, it could be worth adding these stocks to your watchlist.
Since the beginning of the year, the stock market has witnessed intense selling pressure due to several macroeconomic and geopolitical factors. The major market indexes, which have been under pressure, witnessed another round of intense selling pressure over the past few days after the release of the inflation data for May on June 10. The consumer price index rose 8.6% in May, marking its highest increase since December 1981.
In its efforts to tame the multi-decade high inflation, the Federal Reserve has adopted a hawkish stance by hiking interest rates twice this year. With the consumer price index rising above the analyst estimates of 8.3% for May, the Federal Reserve is expected to hike interest rates by 75 basis points, with more coming in later this year. The rising interest rate environment is usually favorable for many companies in the financial sector, especially banks. Higher interest rates help banks increase their revenues.
Given this backdrop, we think it could be wise to add financial stocks Interactive Brokers Group, Inc. (IBKR), PacWest Bancorp (PACW), and Signature Bank (SBNY) to your watchlist. Wall Street analysts expect these stocks to rally more than 65% in the near term.
Interactive Brokers Group, Inc. (IBKR)
IBKR operates as an automated electronic broker worldwide. The company specializes in executing, clearing, and settling trades in stocks, options, futures, foreign exchange instruments, bonds, mutual funds, exchange-traded funds (ETFs), metals, and cryptocurrencies. It also custodies and services account for hedge and mutual funds, ETFs, registered investment advisors, proprietary trading groups, brokers, and individual investors. In addition, it offers custody, prime brokerage, securities, and margin lending services.
On March 8, 2022, IBKR launched a mobile trading application named IBKR GlobalTrader to trade stocks worldwide. The application will enable investors to invest globally. This is expected to help IBKR gain new users and help it increase its revenues.
IBKR's net revenues decreased 27.7% year-over-year to $645 million for the first quarter ended March 31, 2022. The company's net interest income declined 7.5% year-over-year to $282 million. Its total assets increased 4.8% to $114.42 million over the fiscal year ended December 31, 2021. Also, its customer accounts increased 36% year-over-year to 1.81 million.
Analysts expect IBKR's revenue for June 30, 2022, to decline 0.3% year-over-year to $751.30 million. The stock has lost 30% year-to-date to close the last trading session at $55.59. However, Wall Street analysts expect the stock to hit $92.75 in the near term, indicating a potential upside of 66.8%.
PacWest Bancorp (PACW)
PACW is a bank holding company for Pacific Western Bank. It is focused on relationship-based business banking for small, middle-market, and venture-backed businesses. It offers a range of loan, lease, and deposit products and services. Its banking products include application programming interface integration, auto books, business credit cards, and merchant services. It also offers cash management, online banking, and disbursement services.
PACW's total interest income increased 2.5% sequentially to $322.90 million for the first quarter ended March 31, 2022. The company's net interest income increased 0.7% sequentially to $308.71 million. Also, its noninterest expense decreased 4.9% sequentially to $167.42 million. In addition, its total deposits increased 17.7% year-over-year to $33.22 billion.
For the quarter ending June 30, 2022, PACW's EPS is expected to decline 29.6% year-over-year to $1.07. The stock has lost 39.3% year-to-date to close the last trading session at $27.42. However, Wall Street analysts expect the stock to hit $48.14 in the near term, indicating a potential upside of 75.5%.
Signature Bank (SBNY)
SBNY provides commercial banking products and services. It accepts various deposit products, including checking accounts, money market accounts, escrow deposit accounts, cash concentration accounts, certificates of deposits, and other cash management products. It also offers various lending products such as real estate loans and letters of credit. It also provides asset management and investment products and wealth management services.
On May 18, 2022, SBNY announced the launch of a new business line by appointing a nine-person Healthcare Banking and Finance (HBF) team that will collect deposits and provide lending services to clients in the healthcare sector. SBNY's co-founder, President, and CEO Joseph J. DePaolo said, "All this places an even greater demand for healthcare services, thereby elevating the opportunity for broader lending and finance services. We identified what we believe to be a tremendous and persistent need for commercial healthcare finance nationwide."
SBNY's total interest income increased 30.6% year-over-year to $642.16 million for the first quarter ended March 31, 2022. The company's net interest income after the provision for credit losses increased 51.9% year-over-year to $570.86 million. Also, its net income increased 77.6% year-over-year to $338.53 million.
The stock has lost 44.9% year-to-date to close the last trading session at $178.06. However, Wall Street analysts expect the stock to hit $348.67 in the near term, indicating a potential upside of 95.8%.
IBKR shares were trading at $54.28 per share on Thursday morning, down $2.27 (-4.01%). Year-to-date, IBKR has declined -31.44%, versus a -22.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master's degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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