Prosperity Bancshares is a safe pick in a sector that’s been recently defined by risk, according to Wolfe Research. Analyst Bill Carcache double-upgraded the regional bank stock to outperform from underperform, saying the bank has “relative safety on high ground” amid sector turmoil that was initially ignited by the closure of Silicon Valley Bank in March and reignited by the auction won by JPMorgan for First Republic Bank this week. Carcache also upped his price target by $6 to $68. His new target implies the stock could rally 15% from Tuesday’s close. “We view PB as a flight-to-quality name that provides investors with an attractive place to hide amid the current market tumult,” he said in a Wednesday note to clients. He said Prosperity has a strong capital position that will allow it to weather a tougher regulatory backdrop. That’s of increasing importance as industry insiders expect more stringent regulations following the recent bank failures, he said. Prosperity’s “exceptional” credit should also remain, he said, adding that conservative underwriting is the bank’s DNA. He said that the bank has historically had fewer write-offs than regional peers. Meanwhile, he said Prosperity should outperform peers in the deposit franchise. Carcache called Prosperity’s franchise “superior” and noted cycle-to-date and expected terminal deposit betas are below the industry average. Carcache noted that commercial real estate accounts for just $5 billion of the bank’s $19 billion loan book, with almost all of those loans concentrated in Texas. Office CRE accounts for $728 million, which is 14% of total CRE and 4% of total loans. Though office exposure has been an area of investor concern recently, he said the bank is relatively well positioned because of long-term value and Texas’ placement as an immigration beneficiary. — CNBC’s Michael Bloom contributed to this report.
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