NEW YORK ( TheStreet) -- In the midst of a very strong market rally for bank stocks and an improving interest rate outlook, most large regional names are "no longer cheap," but BB&T (BBT - Get Report) remains a solid pick, according to Citigroup analyst Keith Horowitz.
Friday's market euphoria following stronger-than-expected job growth numbers pushed the KBW Bank Index (I:BKX) to a 52-week high of 63.94. The index has returned 25% this year, following a 30% return during 2012.
That's a remarkable run. At the end of 2011, it was fairly easy to look at large-cap U.S. bank stocks, with their remarkably low valuations, and say it was time to load up, but now things are getting more difficult.
On the positive side, long-term rates have increased sharply, with the rate on 10-year U.S. Treasury bonds increasing to 2.73% on Friday, from 1.70% at the end of April. This promises widening net interest margins for banks, but the large-cap banks will only see an "incremental benefit," according to Horowitz.With "valuations that look full, very limited impact from higher rates on earnings in the near term and the forward curve already assuming 100 bp of rate hikes in 2015," Horowitz in a report on Sunday wrote that "we believe risk/reward is not favorable here and would not chase this rally."