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Why Bendigo and Adelaide Bank Ltd shares are on the rise today

One of the best performers on the market today has been the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price.

In afternoon trade the regional bank’s shares are up almost 5% to $10.39.

Why are Bendigo and Adelaide Bank’s shares storming higher?

With no news out of the bank, today’s gain is likely to be attributable to a note out of Goldman Sachs this morning.

That note revealed that its analysts have upgraded its shares from a neutral rating to a buy with an improved price target of $11.60.

Even after today’s solid gain, this price target implies potential upside of over 11.5% for its shares over the next 12 months.

And with Goldman estimating a full-year fully franked dividend of 70 cents per share in FY 2018 and FY 2019 for Bendigo and Adelaide Bank, this 6.7% dividend yield increases the total potential return to over 18%.

Why is Goldman bullish on the bank?

According to the note, Goldman Sachs made the move as it believes Bendigo and Adelaide Bank has strong leverage to recent and future deposit margin improvement and has the most immediate leverage in the sector to a rising cash rate environment.

As you might expect, there are risks involved with an investment. Goldman has pointed to an increase in deposit competition and a cash rate trajectory which differs to its in-house view as being the key risks to the investment turning sour.

But after taking this into account, the broker remains confident that the company is the superior option in the regional bank space and prefers it to Bank of Queensland Limited (ASX: BOQ). Goldman has a neutral rating and $11.52 price target on the shares of its rival.

Elsewhere in the sector the broker has Westpac Banking Corp (ASX: WBC) shares on its buy list and Australia and New Zealand Banking Group (ASX: ANZ) shares on its coveted conviction buy list.

My pick of the group remains Westpac, but arguably all the banks look cheap after recent declines.

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Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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