Silicon Valley Bank buyer First Citizens seen as value play among bigger firms

By Steve Gelsi

Jefferies initiates coverage of North Carolina-based lender with a buy rating

First Citizens BancShares made one of the most high profile transactions of 2023 when it acquired Silicon Valley Bank, but its stock remains discounted compared to other big banks.

Jefferies analysts on Tuesday did their part to remedy the situation by initiating coverage of First Citizens BancShares (FCNCA) with a buy rating as an undervalued name among the U.S.'s largest banks.

Jefferies set a price target of $2,005 a share for First Citizens, which is about 19% above its recent trading levels.

First Citizens Bancshares stock rose by 1.2% on Tuesday. So far this year, the stock is up by 20.5%, compared to a rise of 17.1% by the S&P 500 SPX.

With nearly $118 billion in assets as of March 31, First Citizens BancShares ranks as the 15th largest in the U.S., but the stock trades at a discount to its peers, Jefferies analyst Casey Haire said Tuesday.

With a recent valuation of about 1.2 times total book value, Citizens First BansShares has a valuation lower than all of its peers along with Citizens Financial Group Inc. (CFG), Haire said.

Yet the company generates comparable return on average tangible common shareholders' equity (ROTCE) of 13%, which is comparable to its group.

"We expect the multiple gap to close," Haire said.

The bank's growth prospects remain relatively healthy based on an expected rebound in financing by venture capital funds and their portfolios, which was the business it acquired from Silicon Valley Bank.

"Leverage to the dynamic innovation markets by way of Silicon Valley Bank deal last year and excess capital are the two most distinctive aspects of the FCNCA story and critical to our buy thesis," Haire said.

First Citizens BancShares also holds about $3.2 billion in excess capital on its balance sheet which "enables FNCNA to support organic growth and pursue aggressive share repurchases," Haire said.

Jefferies expects stock buybacks to begin as early as the second half of 2024.

Also read: Why Schwab's stock is getting new respect from Wall Street analysts

-Steve Gelsi

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07-09-24 1103ET

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