These 11 Regional Bank Stocks Are Deeply Undervalued and Should Survive the Intense Pressures Hitting the Sector Today

• A string of recent bank failures has crushed shares of smaller US banks over the last three months.

• Morningstar's chief US stock strategist says many regional bank stocks are dramatically oversold.

• Dave Sekera says a handful of bank stocks can be had for less than half of their fair values.

A banking crisis has introduced volatility into markets, as well as opportunity. REUTERS/Platiau

If you haven't heard, bank stocks are having a bad time.

A series of banks have failed in recent months, hammering shares of financial companies and setting off concerns about a credit crunch that could kick off the recession that investors have been expecting for a year. 

With the entire market keeping an eye out for more signs of bank failure, financial stocks in general and smaller regional banks in particular are getting dumped. The iShares US Regional Banks ETF, which tracks the sector, is down 40% over the last six months.

Morningstar Chief US Market Strategist Dave Sekera says investors are indiscriminately selling the stocks right now, but most of these companies will be on the road to recovery before too long.

"We think the market is overreacting to short-term pressures and have pushed valuations down too far," he wrote in a recent note. "The regional banking business model is not broken. Over the long term, these banks will continue to earn returns higher than their cost of capital."

The picture isn't entirely positive. Sekera wrote that earnings for regional banks will continue to decline for the rest of 2023, then start to recover next year. But that's the extent of the damage he's expecting.

With that forthcoming recovery in mind, Sekera also wrote that the following 11 stocks are severely undervalued right now — in fact, he estimates their fair values are 20% to 155% greater than their most-recent closing prices.

All figures were calculated as of Thursday's close, and the stocks below are ranked from lowest to highest based on how much upside they have relative to Morningstar's fair value estimates.

11. Regions Financial

Ticker: RF

Market cap: $15.0 billion

Fair value: $19

Upside to fair value: 22.4%

10. Frost Bank

Ticker: CFR

Market cap: $6.2 billion 

Fair value: $124

Upside to fair value: 29.6%

9. M&T Bank

Ticker: MTB

Market cap: $18.9 billion

Fair value: $163

Upside to fair value: 43.9%

8. PNC

Ticker: PNC

Market cap: $45.2 billion

Fair value: $175

Upside to fair value: 55.3%

7. Fifth Third Bank

Ticker: FITB

Market cap: $16.4 billion

Fair value: $38

Upside to fair value: 60.6%

6. Huntington National Bank

Ticker: HBAN

Market cap: $13.7 billion

Fair value: $15

Upside to fair value: 61.6%

5. US Bank

Ticker: USB

Market cap: $44.8 billion

Fair value: $58

Upside to fair value: 100.6%

4. Truist Financial

Ticker: TFC

Market cap: $36.9 billion

Fair value: $57

Upside to fair value: 112.4%

3. KeyCorp

Ticker: KEY

Market cap: $8.7 billion

Fair value: $21

Upside to fair value: 131.0%

2. Comerica

Ticker: CMA

Market cap: $4.6 billion

Fair value: $79

Upside to fair value: 141.8%

1. Zions Bancorporation

Ticker: ZION

Market cap: $3.5 billion

Fair value: $58

Upside to fair value: 155.7%