FRC - Goldman Sachs turns bullish on First Republic as margin likely to trough by mid 2023

Goldman Sachs on Thursday upgraded First Republic Bank ( NYSE: FRC ) to Buy from Neutral as its margin will likely bottom in the next few quarters and will stabilize in H2 2023.

In a note on regional banks, Goldman Sachs said First Republic ( FRC ) can sustain mid-teens growth, even in a tougher mortgage environment.

Catalysts that could lift the stock include margin stabilizing by H2 2023, potential margin expansion once the Federal Reserve eases, and no major slowdown in loan growth.

The bank also has less credit risk than peers, which analyst Ryan Nash said makes it a "defensive play against a worsening macro".

Wall Street analysts on average are bullish on First Republic ( FRC ), but SA Quant cautions that it is at high risk of performing badly .

As for regional banks in general, Goldman Sachs forecast mixed performance in 2023 as most will likely experience NIM peaks in Q4 2022/Q1 2023 and loan growth is expected to decelerate.

"If recession risks fade (GS estimates ~35% chance of recession), this could be a group that outperforms given solid fundamentals and relatively cheap valuation," said Nash.

Top picks are Fifth Third Bancorp ( FITB ), Regions Financial ( RF ), Citizens Financial ( CFG ) and Truist Financial ( TFC ).

Read why SA contributor Stephen Simpson believes First Republic ( FRC ) still has longer-term appeal .

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