Why M&T Bank Corporation Shares Willy Fly Above $140

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of M&T Bank  (NYSE: MTB  ) rallied 1% today after Goldman Sachs upgraded the regional bank from neutral to buy.

So what: Along with the upgrade, analyst Ryan Nash raised his price target to $145 (from $128), representing about 20% worth of upside to yesterday's close. So while contrarian traders might be turned off by the stock's climb in recent months, Nash's call could reflect a sense on Wall Street that the bank's growth prospects still aren't fully baked into the valuation.

Now what: According to Goldman, M&T's risk/reward trade-off is rather attractive at this point. "We believe earnings accretion from HCBK will prove well above original guidance, driving upside to EPS (pro- forma we are 6% above consensus for 2015) and declining professional costs (BSA/AML) and an increased focus on efficiency will drive its ratio toward its 50-55% target," said Nash. "Longer-term, we see 12% upside to EPS from higher rates for the combined bank." Of course, with M&T shares flirting with their 52-week high and trading at a P/E premium to the industry, I'd hold out for a wider margin of safety before buying into that bullishness.

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8/29/2014 10:12 AM
MTB $122.78 Up +0.12 +0.10%
M&T Bank Corp CAPS Rating: ****

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