Moody's Credit Downgrade Dings 2 Bank Stocks

Tue., August 8, 2023 | Schaeffers Investment Research

Bank stocks are under fire today, after Moody's downgraded 10 regional lenders. The analyst warned funding risks and weak profitability will test the broader sector's credit strength, and noted it may also cut its rating on bigger lenders, including US Bancorp (NYSE:USB). Fifth Third Bancorp (NASDAQ:FITB) is getting pressured, too, after Moody's changed its outlook on the Cincinnati-based bank name to 'negative.'

As a result, USB is down 4.4% to trade at $38.37 at last check. The equity's latest rally failed to clear the 200-day moving average, but support from the 20-day moving average could contain today's pullback. Year-over-year, US Bancorp stock is down 18.2%.

The brokerage bunch remains optimistic, with 12 of the 21 in question carrying a "buy" or better rating, while the 12-month consensus target price of $44.33 is a 15.3% premium to current levels. This puts USB at risk of downgrades if the stock continues to underperform.

FITB is also struggling, last seen down 4.5% to trade at $27.30. The shares have slipped below their 20-day trendline, and are looking to close firmly below recent support around $28. In the last 12 months, Fifth Third Bancorp stock has shed more than 20%.

Short-term option traders lean bearish, per FITB's Schaeffer's put/call open interest ratio (SOIR) of 1.66, which ranks higher than 98% of readings from the past year.

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