PacWest stock price analysis after the surge: don’t buy it yet

PacWest (NASDAQ: PACW) stock price jumped by almost 20% in the pre-market trading after the company announced positive results. The shares jumped to a high of $12.13, the highest point since March 22. The stock remains almost 605 below the highest point in March.

PacWest Bancorp earnings review

Regional banks have been in the spotlight in the past month following the collapse of SVB and Signature Bank. As I wrote earlier today, First Republic Bank stock price plunged by more than 40% on Tuesday after the company published weak results.

The other major bank news is about PacWest, one of the biggest regional banks in the world. In a statement, the company’s revenue dropped by 4.63% on a year-on-year basis to $318 million. Its earnings per share came in at 66 cents, a few points above what analysts were expected.

The company’s net loss came in at over $1.21 billion while the adjusted earnings came in at $89.4 million. Most importantly, the company’s total deposits increased by $1.1 billion to $28.2 billion. This was a big increase since analysts were expecting the outflows to jump. 

There were other bright spots in PacWest’s report. The company’s available liquidity jumped to $12.4 billion. This is important because these funds exceeded uninsured deposits of $8.1 billion. Its unrealized dropped to $736 million. The CEO wrote that: 

“Our deposits have stabilized with total insured deposits increasing from 48% of total deposits at year-end to 71% of total deposits at March 31, 2023. Importantly, deposits stabilized in the latter part of March and rebounded nicely in April.”

Therefore, the performance of the PacWest stock price is a reflection that investors believe that the company is not facing existential risks.

PacWest stock price volatility expected

As mentioned, the PacWest share price jumped sharply after the company announced strong results. However, this is still not the time to buy the stock for several reasons. 

First, I suspect that First Republic Bank (FRC) will continue falling in the coming days considering that its equity is almost worthless. And the company does not have a good way out, as the Financial Times reported. Therefore, a collapse of First Republic could have a major impact in the banking sector. 

Second, like other regional banks, I believe that the company’s profitability will be challenged in the next few months. The company will need to allocate more cash to its business. This explains why many analysts have downgraded the company’s EPS and revenue estimates. 

Finally, as we saw with Credit Suisse, it is always difficult to catch a falling knife. As the company was crashing, many analysts, including yours truly, often recommended buying the dip. The same is true for other banks that have gone under like Silicon Valley Bank and Silvergate Financial.