Valens Equity Weekly Insights - 2023 03 28
Western Alliance (WAL) stock fell more than 50% after several other banks collapsed. And yet, its operations look nothing like those that collapsed. Its ROE and operations are strong, and its loan portfolio doesn't have the same interest rate risk. Uniform Accounting helps us see how profitable the bank really is.In the fallout of Silicon Valley Bank's collapse, investors sold out of Western Alliance, expecting it to have similar risk of failure. However, its operations aren't nearly as risky. Its uninsured deposit rate is far lower, its underwriting capabilities and operations are best in class, and it actually loans out its deposits instead of investing them. Western Alliance's Uniform ROE should stay stable in the coming years, and yet the market is pricing its returns to collapse.
Western Alliance's management is compensated to focus on making quality loans, to grow, and to have a low-risk portfolio. These should help the business stay stable from where it's been the last decade.
Management confidence about its non-interest income and its ability to put money to work in its mortgage portfolio at the right time suggest it's still in good shape to keep the business stable in coming quarters.
Aramark (ARMK) and United Natural Foods (UNFI) are being removed from the Conviction Long List. Aramark did well during the post-pandemic recovery, but its health is deteriorating. Notably, it has a large debt headwall in 2025, and it's sacrificing its uniform business to service that. Similar for United Natural, it's losing the pricing power it enjoyed while inflation was rising, and it also has significant debt headwalls in 2026 and 2027. We are closing Aramark down 23% and United Natural up 41%
WAL
Western Alliance is a bank holding company. Through its subsidiaries, the company provides a variety of financial services to customers, including commercial real estate loans, construction and land development loans, commercial loans, and consumer loans. The company provides deposit products, including checking accounts, savings accounts, money market accounts, and other types of deposit accounts, including fixed-rate, fixed maturity certificates of deposit. In addition to commercial banking activities, the company provides other financial services to its customers, including: internet banking, wire transfers, electronic bill payment and presentment, lock box services, courier, and cash management services.
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