This is the best buying opportunity in retail banks in years, Baird says

Published Tue, Mar 14 202310:47 AM EDTUpdated Tue, Mar 28 20239:34 AM EDT

The rout in regional banks has resulted in one of the best buying opportunities in "many years," according to Baird. The SPDR S & P Regional Banking ETF (KRE) was down almost 25% in the last three trading days and the group is trading below pre-Covid lows on a pre-provision net revenue basis, analyst David George said in a note Tuesday. The metric George cited is helpful in gauging whether a bank can remain capitalized in tough economic conditions. "Extreme fear and negative sentiment continue to drive the group lower, but we believe the risk of contagion is generally low and believe investors should take advantage of weakness to add exposure to the group," he wrote. KRE 5D mountain KRE's five-day performance Regional bank stocks nosedived after the failure of Silicon Valley Bank, even after U.S. regulators backstopped all depositors in the banks. On Tuesday, the sector attempted to rebound . George noted that while liquidity movement is generally hard to predict, the average retail or corporate customer of most regional banks is not at all similar to those at SVB. "We continue to believe the issues surrounding SVB and SBNY/Signature are idiosyncratic and a function of less granular funding rather than systemic underlying franchise weakness," he said. Among his coverage universe, he has overweight ratings on 11 regional bank stocks. KeyCorp and Comerica were the hardest hit on Monday, both falling more than 27%. Baird just upgraded KeyCorp to outperform on Friday, citing the stock's good entry point in light of its recent weakness. The firm's price target on KeyCorp implies nearly 76% upside from Monday's close. Its price target on Comerica suggests 127% upside. Comerica and KeyCorp both have an average analyst rating of overweight, according to FactSet. However, on Monday, Moody's placed Comerica on review for downgrade . The firm said the review for Comerica and five other regional banks "reflects the extremely volatile funding conditions for some US banks exposed to the risk of uninsured deposit outflows." Separately, Moody's also cut its view of the entire sector to negative, citing the rapidly changing conditions in the wake of the recent bank failures for its stance. But even after Moody's comments, bank stocks were still recovering some lost ground on Tuesday, including Fifth Third Bancorp shares, which rose nearly 3%. The stock was one that was highlighted as a buying opportunity by Baird. The firm sees the stock rallying nearly 68% from Monday's close. CEO Timothy Spence told CNBC Monday that Fifth Third Bancorp does not have the same issues as the failed banks. "I am exceptionally comfortable with the position that we've got. We've got one of the most granular, stable deposit bases among any of the regional banks, a significant share of our deposits come from individuals," he said in a " Squawk on the Street " interview Monday. Meanwhile, PNC Financial Services has about 50% upside to Baird's price target. The Pittsburgh-based bank had considered buying Silicon Valley Bank, but told the Federal Deposit Insurance Corp. on Saturday it would not move forward, a source told CNBC . Baird is far from the only firm bullish on PNC. The average analyst price target is overweight, according to FactSet. Citi also upgraded the bank's shares to buy from hold on Monday. The Wall Street firm cited PNC's strong management team and the stock's attractive entry point. — CNBC's Michael Bloom contributed reporting.