First Republic Bank (NYSE: FRC) stock price is unloved and unwanted as investors worry about the company’s future. The shares have moved sideways close to its lowest level this year as investors wait for more data. They have lost over 90% of their value this week.
Light at the end of the tunnel?
One of the best banking news of this week came from Western Alliance Bank, which was seen as a high-risk company after the collapse of SVB and Signature Bank. In its financial results, the company said that customers were moving back. Its deposits jumped by over $3 billion in the past few weeks, meaning that it has recovered about 40% of what it lost.
These results bode well for other regional banks, including First Republic Bank. They mean that confidence has started to move in to these banks, thanks to the guarantee by the federal government that it will guarantee deposits.
The next key catalyst for the FRC stock price will come out on April 24th, when the company will publish its financial results. Analysts believe that the company will say that total deposits plunged by over $74 billion in the first quarter. This decline will be offset by the $30 billion deposits from large American banks like JP Morgan and Citigroup.
Analysts have downgraded their First Republic Bank estimates. In the past 90 days, 9 analysts have downgraded their EPS estimate. They now expect that the company’s Q1 EPS will come in at $0.51 while its revenue wil be $1.13 billion.
Is FRC stock price too cheap?
FRC chart by TradingView
That First Republic is a risky bank is not news. Everyone knows that, which explains why the shares have plunged to less than $15. Therefore, the question is whether the stock has any chance of bouncing back in the next few days.
I believe that FRC business wil go through years of slowdown as it adjusts to the new normal. I also have concerns about the company’s bond holdings and its future profitability.
However, after conducting a risk/reward analysis, I have concluded that it is a good stock to buy at the current level. But because of the overall risks, this position should be a tiny one, since the biggest risk is that it could fail.
The bullish case is that the company has said that outflows have slowed recently and that the revenue and profitability weakness has already been priced in. Also, the fact that the company has suspended its preferred dividend is already known. As such, these results have already been priced in.
Therefore, I believe that the shares will rise to the next key resistance point at $20 after it publishes its financial results on Monday.
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