On Dec 23, 2014, we issued an updated research report on Prosperity Bancshares Inc. (PB). Appreciable top-line growth remained the company’s strength, while weak expense management continued to disappoint.
Prosperity Bancshares provides a wide range of financial products and services to small and medium-sized businesses and consumers. Also, the company continues to expand considerably through the acquisition of community banks and branches of other banks.
The growth tale of this Houston, TX-based Southwest bank can be witnessed in the consistent improvement in loans and deposits. As of Sep 30, 2014, the bank’s total loans and total deposits increased by 20.5% and 11.3%, respectively, from the Dec 30, 2013 level. This helped enhance the revenue generation of the company, which reflected a 38.4% rise in the first nine months of 2014.
Shifting the focus on Prosperity Bancshares’ capital deployment activities, in Oct 2014, the quarterly cash dividend was raised 13.5% to 27.25 cents per share. Also, the company’s sustained initiatives to return capital to shareholders exhibit an efficient share repurchase program in place.
On the flip side, the constantly mounting expenses remain a challenge for Prosperity Bancshares. The 37.3% increase in non-interest expenses in the first nine months of 2014 emphasized on the need for improved expense management. However, the company’s ongoing acquisition spree diminishes any hope to attain the same in the near term.
Moreover, despite efficient enhanced credit quality and margin growth, Prosperity Bancshares failed to gain investors’ confidence. The ambiguity prevalent in the market regarding the company’s future performance due to high regulatory pressure and a struggling housing sector is evident from the 11.3% year-to-date fall in the share price.
This can also be observed in the Zacks Consensus Estimate for 2014, which remained flat at $4.28 per share over the last 30 days and decreased marginally to $4.31 per share for 2015 during the same time frame.
Prosperity Bancshares currently carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked banks include Columbia Banking System, Inc. (COLB), S&T Bancorp, Inc. (STBA) and First Connecticut Bancorp, Inc. (FBNK). All these stocks hold a Zacks Rank #1 (Strong Buy).
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