First Citizens Stock Has Taken Off. Its ‘Best Days’ May Be Ahead.

Analysts at J.P. Morgan Securities, who already rated First Citizens’ shares at Overweight, are now even more bullish on the stock. The team sees shares hitting $2,000, up from a previous price target of $1,850. That implies a gain of 43% for the stock from its recent level near $1,400.

Key to the bull case is the notion that First Citizens is only beginning to reap the benefits of its acquisition of Silicon Valley Bank from the Federal Deposit Insurance Corp in March. First Citizens, known for being conservative on lending decisions, provides a steady hand, while the
SVB
business—famous as the bank of the so-called innovation economy—is poised to take off when the climate for venture-capital investment perks up.

“As we evaluate the combination of the First Citizens management team being one that thinks and acts for the long term with the opportunity for SVB to regain its former self, we are optimistic that the best days for the SVB franchise could be ahead,” Steven Alexopoulos, a J.P. Morgan analyst, wrote Friday.

Alexopoulos now expects First Citizens to earn $178.04 per share in 2023, up from a previous target of $168.73. He also raised his forecast for 2024 earnings by $7.39 to $195.33 per share.

By his tally, First Citizens stock trades just slightly below 2024 estimates for tangible book value, or 10% below its peers. This also implies some room for upside in the price.

Still, there are risks to consider. For starters, shares are already up 84% this year, which means Wall Street may have already priced in the good news from the SVB purchase.

Also, the innovation economy has had a hard time over the past two years because of both economic uncertainty and international turmoil. Although Alexopoulos estimates that there is more than $300 billion of venture capital “dry powder” in the U.S. today, VCs have been more cautious about deploying it. First Citizens’ success with SVB depends on a rebound of activity.

There is also the challenge of retaining, or winning back, clients at SVB, which failed following a run on deposits in March. Deposits at SVB have held steady around $40 billion over the past two quarters, but First Citizens expects the total to decline by $5 billion in the fourth quarter. The fledgling companies that comprise much of the customer base are burning through their cash holdings, while VC funding remains “subdued,” according to First Citizens.

Alexopoulos said that estimate could prove to be conservative, citing a potential turnaround in VC funding, as well as First Citizens’ efforts to win back business.

“We have observed in the past several months that SVB has been very active with ad campaigns getting the word out there that the franchise is back, as well as participating in conferences and debuting its ‘Yes, SVB’ campaign nationally,” Alexopoulos wrote. With those efforts, the bank added more than 600 new clients in the third quarter. 

The First Citizens story isn’t without risks but it may still have plenty of opportunity.

Write to Carleton English at [email protected]