Amid a weak afternoon performance during the midweek session, Western Alliance (NYSE:WAL) in particular, cut a worrying figure. WAL stock dropped around 11% as the underlying financial enterprise released its first-quarter earnings preview. However, the disclosure failed to provide key information regarding deposit outflows. Jittery investors read between the lines, sending shares down amid a cacophony of potential headwinds.
Mainly, the highlight for the Q1 preview centered on total insured deposits. Western Alliance noted that this metric — which includes collateralized and pass-through insured deposits — represents approximately 68% of total deposits, a significantly higher figure compared to the year-end result. Further, as of quarter-end, “…immediately available liquidity (on-balance sheet liquidity and unused borrowing capacity) exceeded uninsured deposits, with a coverage ratio greater than 140%.”
Still, as The Wall Street Journal pointed out, “[t]he Phoenix-based lender did not provide a dollar amount for total deposits, leaving it unclear whether they had grown or declined in recent weeks.” Indeed, the WSJ stated that many smaller and midsized banks witnessed significant deposit outflows following the collapse of SVB Financial Group (OTCMKTS:SIVBQ).
Adding to worries for WAL stock is that the nation’s largest institutions also incurred deposit outflows. Therefore, concerns about the banking sector fallout may be far from over.
Analysts Remain Bullish for WAL Stock (for Now)
Although circumstances appear discouraging for WAL stock, in fairness, data from TipRanks reveals that Western Alliance enjoys a consensus “strong buy” view. This tally breaks down to eight “buys,” two “holds,” and significantly zero “sells.” The average price target also hits $69.63, implying about 132% upside potential from the time-of-writing price.
At first glance, this framework appears incredibly enticing. Still, unusual arithmetic plays a key role here. Because WAL stock dropped so suddenly, losing around 61% in the trailing month, some of the “residual” price targets appear incredibly generous.
For example, WAL’s top price target stands at $96. At the peak closing price of this year, WAL stock reached $80.60. Compared to this price point, such a target represents a reasonable lift of 19%. However, from the present juncture, a $96 target more than triples the market value.
Notably, not every analyst views WAL stock in a favorable light. The lowest price target among Wall Street’s experts anticipates shares dipping to $50. While that’s still a massive jump from the current price, it’s a sizable fall from this year’s aforementioned peak.
Why It Matters
Along with the jitters of the banking sector fallout, stakeholders of WAL stock must consider the Federal Reserve’s monetary policy. This framework became much more complicated amid the contrasting implications behind lower-than-expected employment opportunities data and surprise oil production cuts. Therefore, investors must be extremely vigilant regarding their next moves.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
