Morgan Stanley analyst warned of potentially big swings for some of the regional banks it covers as the fallout for the crisis continues. Analyst Manan Gosalia downgraded Commerce Bancshares and Prosperity Bancshares to underweight from equal weight. He lowered his price targets by a median of 5% on weaker multiples. Commerce Bancshares’ new price target of $48 implies shares declining 3.5% from Monday’s close. Meanwhile, the analysts’ new price target of $60 per share for Prosperity Bancshares implies a 1% loss from where shares closed on Monday. The analyst also noted that, “with sentiment overly negative, we don’t think it would take very much to drive a potential short squeeze here.” A short squeeze happens when a stock surges and forces investors shorting it to cover their positions, which typically drives prices even higher. However, stocks tend to fall sharply after a squeeze. He also referred to the downgrades as “relative valuation calls, given how much the rest of the group has de-rated.” Gosalia noted that Commerce and Prosperity Bancshares are the most expensive mid-cap banks covered by Morgan Stanley, trading at more than 15 and 12 times higher than their 2024 earnings per share forward estimates, respectively. Meanwhile, peer banks are trading just seven times higher, said Gosalia. To be sure, the analyst said that in the case deposit outflows do accelerate, Commerce Bancshares and Prosperity Bancshares would end up outperforming their peers due to their “generally more resilient funding profiles.” —CNBC’s Michael Bloom contributed to this report.
