This was written before this stock went up 5% today…I do not own shares at this time, but have been looking to add.
What is WAL?
Western Alliance Bank is a bank holding company based in Phoenix, AZ. They have offices throughout the Southwest. They focus on home lending as well as small business loans.
Why is this bank special?
It's really not on the surface. However, it is a very well managed bank. They average a ROE in the high teens (5 year average is 18.22) which is impressive for a bank. They have been making investments in their technology offerings. In 2021 they partnered with a block chain payments company, Tassat, to offer payment processing. They just announced a new Tech hub they will be building in Ohio.
If it's not that special, why buy it?
The bank does pay a dividend, about 2.3% depending on market fluctuations. This isn't a reason to buy on it's own, but it's nice. The company is forecast to grow earnings about 10-11% annually for the next few years. Again, solid, but not remarkable.
What attracts me to this stock is how cheap it is. WAL is trading at 6.7x earnings. That is insanely cheap for a bank growing earnings 10% annually. FITB is trading at 10x. So is RF. WAL has growth equal to either of these banks, but is much cheaper.
Why is the market missing this?
I feel like the market is pricing in a drop in earnings, although no analysts have forecast this. WAL does have a large mortgage servicing arm, so they are vulnerable to defaults.
Why is the market wrong?
WAL has started to see their average loan rate start to tick up. This means they get more money for their loan portfolio. They have not seen any growth in their default rates so far. Personally, I don't think we are looking at another mortgage crisis. Lightning rarely strikes the same place twice. It is much harder to qualify for a mortgage than it was before the GFC. There is almost no variable rate mortgages, and they are not being fed to people who don't know what they are. I think the risk of massive defaults is low.
So what is the investment thesis?
WAL is trading at a discount to its peers. Growing banks are being valued at 10x earnings, but WAL is at 6x. If WAL trades at 10x it would be a $100+ stock (next year it's forecast to make $10.81/share). That is a 50% gain from todays closing price. Plus dividends and earnings growth. I feel like this stock has been mis-priced among its peers and is due to correct.
Do your own research, and this isn't advice and all that.
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