Bernstein analyst downgrades regional banks, says valuations rich following Trump surge

A Citizens Financial Group bank branch in Boston
Kelvin Ma | Bloomberg | Getty Images

Bernstein became the latest Wall Street firm Wednesday to sound a cautious tone on the financial sector following the stocks' monster rally on Donald Trump's presidential victory.

"Recent outperformance has pushed the regional bank stocks to the upper end of their historical valuations on forward earnings estimates. Even factoring in the potential for positive revisions and regulatory easing, we struggle to find compelling upside to any of the mid-cap bank stocks in our coverage," wrote equity analyst Kevin Pierre, who downgraded Citizens Financial, Fifth Third Bancorp, KeyCorp and Zions Bancorp to market perform from outperform.

Financials stocks have been the best performing group since Trump won the U.S. presidential race given expectations that lower financial regulation, lower corporate taxes and higher interest rates could spark growth in the sector.

But as the rally gets underway, with the S&P financial sector up more than 20 percent since the June trough, Bernstein believes it might be difficult to justify the spike in multiples, especially among mid-cap bank stocks.