We issued an updated research report on Prosperity Bancshares Inc. PB on Mar 31, 2015. Considerable growth in the top line continued to be a positive, while weak expense management remained an undermining factor.
The growth tale of this Houston, TX-based bank can be witnessed in the consistent improvement in loans and deposits. In 2014, the bank’s total loans and total deposits grew 18.9% and 15.7%, respectively, on a year-over-year basis. This helped enhance the revenue generation of the company, which reflected a 33.6% rise in 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 and the company has maintained the same level since then. 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 33.5% increase in non-interest expenses in 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.
Driven by Prosperity Bancshares’ inclination toward acquisitions and organic expansion supported by a strong balance sheet position, the company succeeded in gaining investors’ confidence, which is evident from the 12.3% rise in the share price since the last earnings release. However, regulatory pressure and substantial exposure to the real estate loan portfolio continue to pose a challenge.
This can also be observed in the Zacks Consensus Estimate for 2015 and 2016, which remained flat over the last 30 days.
Prosperity Bancshares currently carries a Zacks Rank #2 (Buy). Some better-ranked banks include Central Pacific Financial Corp. CPF, Farmers and Merchants Bancorp Inc. FMAO and Malvern Bancorp, Inc. MLVF. All these stocks hold a Zacks Rank #1 (Strong Buy).
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