FRC stock price prediction: Why this analyst says First Republic is only worth $5
Source: Under the Sky / Shutterstock.com
There seems to be a new development every day lately with Bank of the First Republic (NYSE:FRC). Today’s major development is not good news for the First Republic, however. Apparently, an analyst has given FRC stock a price target that is sure to turn heads on Wall Street.
Some of First Republic Bank’s investors were concerned after the SVB Financial Group (NASDAQ:SIVB) breakup. Because First Republic is not a giant bank like Citigroup (NYSE:VS) Or Bank of America (NYSE:BAC), some traders might worry about First Republic Bank’s ability to create value for its shareholders.
However, First Republic Bank received a financial lifeline as Citigroup, Bank of America and other major banks pledged $30 billion in deposits to First Republic. Does this mean that the business is now trouble-free?
Not necessarily. Wedbush analyst David Chiaverini fears that a potential sale of First Republic Bank “could result in minimal, if any, residual value for common stock holders.” Additionally, Chiaverini expects First Republic Bank could end up with “significant negative tangible book value.” The analyst considers First Republic’s “fair value marks on its loans and securities” when issuing this warning.
What’s going on with FRC shares?
FRC stock was down 20% in the first hour of trading today, so it’s clear some investors are concerned about First Republic Bank. Chiaverini’s comment could put further pressure on First Republic Bank’s share price.
Investors are also likely reacting to analysts’ downgrade of First Republic Bank. Specifically, Chiaverini downgraded its rating on the stocks from “outperforming” to “neutral.”
There’s more to the story, however. In a move that may shock some investors, Chiaverini cut his price target on FRC shares from $140 to $5. Granted, it’s not uncommon for analysts to lower their price targets when a stock loses significant value.
Still, $140 to $5 is a noticeable reduction from the price target. On the other hand, the analyst is not entirely negative in his view of First Republic Bank. In particular, Chiaverini acknowledged that the First Republic had an “exceptionally strong reputation and franchise value”.
However, financial operators today are not optimistic about First Republic Bank’s future prospects. Certainly, it is possible that FRC stock will rebound at some point. Or, it could continue to head towards Chiaverini’s ultra-low price target, much to the chagrin of some current First Republic shareholders.
As of the date of publication, David Moadel had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.