Benefits from a stabilizing economy and improving interest-rate scenario have well positioned the banking industry. Moreover, lower commercial tax rate are likely to further boost profitability of the banks.
In addition, relieving banks from some of the stringent requirements of the Dodd-Frank Act has made the companies optimistic of future earnings growth and raised investors’ sentiments as well.
Therefore, we are considering two such banks that are well poised to benefit from the improving economic backdrop — Cullen/Frost Bankers, Inc. CFR and BOK Financial Corporation BOKF — the two Southwest banks. Being based in the same region, both companies are influenced by a similar economic environment.
The Zacks Industry Rank is #74 (top 29% of the 250 plus Zacks industries) for the industry, to which these two companies belong to. Our back-testing shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than two to one.
Cullen/Frost, with a market cap of $7.4 billion, offers a wide range of commercial and consumer banking services in Texas, operating around 134 financial centers and nearly 1,300 ATMs. On the other hand, BOK Financial provides various financial products and services in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona and Kansas/Missouri, and has a market cap of $6.7 billion.
Cullen/Frost sports a Zacks Rank #1 (Strong Buy), while BOK Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Though both banks have similar business trends, deeper research into the financials will help decide which investment option is better.
Price Performance
Both banks have outperformed the industry (down 2.8%) over the last six months and gained decently. While shares of Cullen/Frost have rallied 15.7%, BOK Financial has recorded growth of 13.9%. So, Cullen/Frost performed better than BOK Financial.
Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12-month period is 12.34% for Cullen/Frost and 10.39% for BOK Financial as compared with the industry’s level of 10.02%. Therefore, Cullen/Frost reinvests its earnings more efficiently.
Earnings Estimate Revisions & Growth Projections
The Zacks Consensus Estimate for 2018 earnings of Cullen/Frost has increased 2.3% over the past 30 days. On the other hand, the same for BOK Financial moved up nearly 2% for this year, during the same time frame.
Furthermore, the current-year earnings for Cullen/Frost are projected to jump 22.6% year over year. For BOK Financial, the Zacks Consensus Estimate is pegged at $6.73 for 2018, reflecting a year-over-year increase of 27.2%.
Hence, BOK Financial reflects better earnings prospects.
Sales Growth
Sales for Cullen/Frost for the current year are estimated to be up 17.3% year over year to $1.4 billion. For BOK Financial, the Zacks Consensus Estimate is pegged at $1.6 billion for 2018, reflecting year-over-year growth of 2.8%.
Therefore, Cullen/Frost has an edge here.
Dividend Yield
Both companies have been deploying capital in terms of dividend payments to enhance shareholder value. BOK Financial has a current dividend yield of 1.76%, while Cullen/Frost has a dividend yield of 1.95%.
Therefore, shareholders of Cullen/Frost gain more.
Leverage Ratio
BOK Financial has higher debt-to-equity ratio of 1.67 compared with the industry average of 0.46. However, Cullen/Frost, with a ratio of 0.08, has an edge over BOK Financial.
Valuation
Cullen/Frost seems overvalued when compared with the broader industry. Its current price-to-sales and price/earnings ratios are higher than the respective industry averages.
BOK Financial, on the other hand, seems undervalued when compared with the broader industry. Its current price-to-sales and price/earnings ratios are lower than the respective industry averages.
So, BOK Financial holds the edge over Cullen/Frost here.
Conclusion
Our comparative analysis indicates that Cullen/Frost is positioned well than BOK Financial, post first-quarter earnings, considering the price performance, dividend yield, ROE, superior leverage ratio and sales growth expectations. BOK Financial wins on earnings growth projections and undervaluation.
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