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Analyst Blog

On Sep 9, 2013, we reaffirmed our Neutral recommendation on Zions Bancorp. (ZION - Analyst Report). This was based on the company’s positive second-quarter 2013 results. However, we remain concerned about continuous deposit pricing pressures as well as sluggish loan and deposit growth. Moreover, intense competition in the sector may lower deposit pricing further, thereby compressing Zions’ net interest margin in the upcoming quarters.

Why Neutral?

On Jul 22, Zions reported second-quarter 2013 earnings per share of 44 cents, surpassing the Zacks Consensus Estimate of 42 cents. Earnings were primarily driven by top-line growth, partially offset by a rise in operating expenses. Moreover, consistent improvement in credit quality and capital ratios, along with stable deposits and loans, were the tailwinds.

The Zacks Consensus Estimate for 2013 decreased 5.1% to $1.69 per share over the last 60 days. However, for 2014, the Zacks Consensus Estimate advanced 1.0% to $1.96 per share over the same time period. As a result, Zions currently carries a Zacks Rank #3 (Hold).

Zions has achieved solid organic loan growth, in consistence with the improving economic activity across its diverse footprint. Considering the recovering economy, management expects moderate loan growth to offset the subdued loan yields in the upcoming quarters. Moreover, improving credit quality and steady capital ratios are Zions’ strengths.

However, the prevailing interest rates, sluggish economic growth, the company’s asset-sensitive balance sheet, losses related to its collateralized debt obligations exposure and regulatory restrictions are matters of concern.

Other Stocks Worth Considering

Some better-performing banks include BofI Holding, Inc. (BOFI - Snapshot Report), Preferred Bank (PFBC - Snapshot Report) and East West Bancorp, Inc. (EWBC - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).
 

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