On Jun 10, 2013, we reiterated our long-term recommendation on Zions Bancorp. (ZION) at Neutral. Our decision rests on its continuous capital deployment activities and solid first-quarter 2013 earnings. However, we remain concerned about the company’s asset-sensitive balance sheet.
Why the Neutral Stance?
Zions’ first-quarter 2013 adjusted earnings of 49 cents per share surpassed the Zacks Consensus Estimate of 39 cents. Also, earnings came in significantly ahead of the year-ago earnings of 21 cents. Better-than-expected results were aided by growth in fee income and a decline in operating expenses, partially offset by a fall in net interest income. Moreover, continuously improving credit quality, capital and profitable ratios as well as stable deposits and loans were the tailwinds.
Following the result release, the Zacks Consensus Estimate went up by 3.5% to $1.77 per share over the last 60 days. Moreover, for 2014, the Zacks Consensus Estimate went up by 1.0% to $1.92 per share over the same time frame. The company currently has a Zacks Rank #2 (Buy).
On Apr 19, 2013, Zions announced a dividend hike of 300% to 4 cents per share, following the partial approval of its capital plan by the Federal Reserve. Moreover, Zions’ continuously improving credit quality, solid organic loan growth and stable capital ratios are expected to improve its financials going forward.
Additionally, over the past several years, Zions has expanded its footprint through acquisitions. This is expected to drive its future growth.
On the other hand, Zions’ total liquidity continued to mount, making the company more vulnerable in the face of a dominant low interest-rate environment. Further, slow growth in core deposits and loans could cause a negative mix shift.
Moreover, Zions has been incurring significant losses owing to its collateralized debt obligation (CDO) exposure. This may prove detrimental to the company’s growth.
Other Banks to Consider
Some other stocks in the banking sector worth a look include Central Pacific Financial Corp. (CPF), Preferred Bank (PFBC) and TriCo Bancshares (TCBK). All these carry a Zacks Rank #1 (Strong Buy).
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