KBW cuts Valley National rating and upgrades UMB in bank balance sheet study

By Steve Gelsi

KBW lifts UMB Financial to 'outperform' for first time in 20 years, while Valley National gets cut to 'market perform' as analysts weigh capital structures

UMB Financial Corp. drew its first upgrade to outperform in at least 20 years while Valley National Bancorp was downgraded to market perform as KBW weighed bank balance sheet strength in the current higher-for-longer interest rate environment

Analyst Chris McGratty increased his price target for UMB Financial (UMBF) by $5 a share to $98 a share and said the bank stands out as an undervalued name in the space.

"UMBF is uniquely well-prepared on the balance sheet and the income statement," McGratty said.

The bank will also benefit from its pending $2 billion acquisition of Heartland Financial USA Inc. (HTLF), which it announced in April, as a way for UMB to achieve its full earnings potential, he said.

Meanwhile, KBW set a price target of $8 a share for Valley National (VLY) and said the bank is ranked last out of 15 lenders in its $50 billion to $100 billion asset peer group under its recently modified grading system called CAMELS.

CAMELS is an acronym that stands for capital adequacy, asset quality, management, earnings, liquidity and sensitivity of assets.

UMB drew higher marks based on the same grading system.

Valley National remains a "negative outlier" for capital levels, reserves and commercial-real-estate concentration, McGratty said.

"We believe Valley National's valuation will remain discounted until there is greater convergence to peer levels," McGratty said.

As part of its CAMELS review, KBW also recommended investors remain overweight on KeyCorp (KEY) and underweight on Regions Financial Corp. (RF) among larger regional banks.

It's also recommending an overweight position on Webster Financial Corp. (WBS) along with its underweight rating on Valley National.

Also read: KBW spotlights East West Bancorp, Webster Bank and Western Alliance as offering growth and value in tough year for bank stocks

-Steve Gelsi

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05-31-24 1308ET

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