On Oct 9, 2013, we initiated our coverage on regional bank BancorpSouth, Inc. (BXS) at Neutral, aided by a rise in non-interest revenues. Moreover, loan loss provision levels stabilized in the quarter with a number of credit quality metrics exhibiting favorable trends. However, regulatory reforms, rising expenses and an unsettled global economy might act as deterrents for this stock.
Why Neutral?
BancorpSouth’s ability to grow non-interest revenues amid a slowly recovering macroeconomic environment coupled with regulatory upheavals, its capital adequacy and stabilizing credit metrics has prompted us to initiate the stock at Neutral.
In fact, BancorpSouth’s rising non-interest revenues are expected to partially offset net interest margin (NIM) compression in the near term and drive top-line growth. Additionally, BancorpSouth seems attractive for yield-seeking investors due to its steady capital deployment activities. Given its strong capital position, the company hiked its dividend in August by 400%.
However, with the rise in non-interest expenses, the company is exposed to operational risks. Moreover, the recent regulatory norms have increased compliance costs. If these factors prevail, the company’s bottom-line growth will suffer.
For BancorpSouth, over the last 90 days the Zacks Consensus Estimate for 2013 increased 8.8% to 99 cents per share. For 2014, the Zacks Consensus Estimate moved north by 12.3% to $1.19 per share.
Earnings Whispers?
BancorpSouth is expected to release third-quarter earnings on Oct 21. The Zacks Consensus Estimate for the third quarter is 26 cents. The Earnings ESP for the company is 0.00% for the quarter. This, along with its Zacks Rank #3 (Hold), reduces chances of a positive earnings surprise.
Other Stocks to Consider
While we are not overly confident about BancorpSouth's potential, we anticipate an earnings beat by 3 other regional banks:
Huntington Bancshares Inc. (HBAN), with earnings ESP of 17.65% and a Zacks Rank #3 (Hold).
Cullen/Frost Bankers, Inc. (CFR), with earnings ESP of 1.04% and a Zacks Rank #2 (Buy).
Fifth Third Bancorp (FITB), with earnings ESP of 4.55% and a Zacks Rank #3 (Hold).
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