Jefferies Initiates Coverage on Israeli Banks with Bullish Outlook
Jefferies issued a bullish report on Israeli banks, citing strong macro fundamentals and attractive valuations. Bank Hapoalim was upgraded to 'Buy', alongside target prices for major lenders.
Jefferies has initiated coverage of the Israeli banking sector with an exceptionally bullish assessment, highlighting high quality at a discount and significant upside potential across the board. In a comprehensive report titled "Quality at a Discount – We See Upside Potential Across the Board," analyst Taby Rosner notes that Israeli banks exhibit robust fundamentals despite trading near all-time highs on the Tel Aviv Stock Exchange.
Price Targets and Recommendations
Jefferies upgraded Bank Hapoalim from 'Hold' to 'Buy', while maintaining a 'Buy' rating for all other major institutions. The investment bank initiated coverage on Mizrahi Tefahot Bank alongside its existing coverage of Bank Leumi, Bank Hapoalim, and Israel Discount Bank, omitting only First International Bank of Israel from the current review. Price targets were set at 92 NIS for Bank Leumi (a 16% upside from market price), 91 NIS for Bank Hapoalim (12%), 43 NIS for Israel Discount Bank (18%), and 300 NIS for Mizrahi Tefahot Bank (25%).
"The Israeli macro environment looks solid and provides positive trends. The economy navigated the war exceptionally well, the Bank of Israel estimates growth at 4% this year and 5.5% next year, and capital requirements are among the strictest in developed banking systems," Jefferies wrote.
Resilience and Valuation Gaps
According to the analysis, conservative underwriting standards and exceptionally low non-performing loan ratios have created a structurally resilient sector. Jefferies emphasizes that the combination of conservatism and a 15% return on equity represents a unique market position. Furthermore, while Israeli bank shares trade near historical peaks, their price-to-book multiples ranging from 1.1 to 1.5 remain attractive compared to the European Union average of 1.8, accompanied by robust dividend yields of 5% to 5.5%.
The report outlines three central debates that will dictate the pace of valuation convergence: the durability of net interest margins (NIM) despite expected interest rate cuts, the full digestion of regulatory impacts including the expiration of special bank taxes post-2027, and the upcoming elections as a potential catalyst for strategic shifts.
