D.A. Davidson reiterates Western Alliance stock Buy rating at $93 By Investing.com

D.A. Davidson reiterated a Buy rating on Western Alliance Bancorporation with a $93 price target after first-quarter results topped expectations. Adjusted EPS came in at $2.22 versus $1.69 consensus, and revenue was $1.02 billion versus $958.12 million expected, despite $152.5 million in fraud-related charge-offs. Net interest margin expanded to 3.54%, helped by a 21 bps decline in the cost of interest-bearing deposits.

Analysis

WAL’s print matters less as a one-quarter beat and more as evidence that the market is still underpricing earnings power normalization after the fraud-driven noise clears. The key second-order effect is that lower deposit costs and improving NII suggest the bank can re-lever earnings without needing a heroic loan-growth backdrop; that supports multiple expansion in a sub-9x P/E name if credit stabilizes. More importantly, the “bad news” appears increasingly compartmentalized, which reduces the probability of a broader franchise discount spreading to peer western-region banks with similar funding profiles.

The near-term risk is that investors anchor on the charge-off headline and miss the asymmetry: if there are no additional idiosyncratic credit surprises over the next 1-2 quarters, the stock can re-rate quickly because the operating business is already showing through. The main reversal catalyst would be any new litigation/fraud-related reserve build or a turn higher in deposit beta, since that would compress the operating leverage story and keep the market focused on asset quality rather than core NII. A softer macro credit tape would also limit upside because banks with cleaner narratives would attract capital first.

The contrarian view is that consensus may still be too pessimistic on WAL’s earnings power and too optimistic on how long the “one-off” stigma lingers. If management can string together two clean quarters, the market may have to reconcile a mid-teens normalized ROE profile with an earnings multiple that still looks like a distress discount. That makes WAL more interesting as a re-rating trade than a fundamental recovery trade, with the inflection likely measured in weeks if the next data points stay quiet.

Key Decisions for Investors

• Go long WAL on a 1-2 quarter horizon; entry is attractive on any post-earnings pullback toward the low-80s, targeting a re-rate toward 10-11x forward earnings over 3-6 months.
• Use a call spread in WAL (e.g., 3-6 month maturities) to express upside from stigma compression while capping risk if another reserve surprise emerges; best when implied vol is elevated after headlines.
• Pair long WAL / short a cleaner regional bank ETF basket or a more expensive peer, aiming to monetize the valuation gap if WAL’s credit noise fades faster than expected.
• If holding existing bank exposure, overweight WAL versus higher-multiple peers where upside is more dependent on loan growth than deposit-cost improvement; WAL has better operating leverage from rate normalization.
• Set a hard stop if there is another litigation/fraud reserve build in the next quarter, because that would invalidate the thesis and shift the stock back into a credibility discount regime.