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Analyst Blog

Shares of Prosperity Bancshares Inc. (PB - Analyst Report) touched a new 52-week high of $62.00 during its trading session on Sep 30. This denotes an increase over the previous high of $61.99 reached on Sep 18.  

Prosperity Bancshares closed the trading day on Sep 30 at $61.84, reflecting a solid year-to-date return of 47.7%. The trading volume for the session was 0.40 million shares. Further upside potential exists for this Zacks Rank #2 (buy) registered bank holding company as can be deduced from its expected earnings growth of 11.1% for 2013 and 11.5% for 2014.

Growth Drivers

Shares of Prosperity Bancshares have risen 2.4% since the company on Aug 29, announced to have entered into a definitive agreement to acquire F&M Bancorporation Inc. (FMBC) and F&M Bank & Trust Company (F&M Bank). The transaction has been approved by the board of directors of both the companies and is anticipated to close by first quarter 2014.

Through this acquisition, Prosperity Bancshares intends to expand in the economically attractive Tulsa market and utilize F&M Bank’s 68 years of banking experience there. Further, it plans to capitalize on F&M Bank’s attractive core deposit base as well as commercial and industrial lending portfolios.

Besides this transaction, a look into Prosperity Bancshares’ second quarter 2013 results clearly points to the company’s financial strength. Earnings per share in the quarter came in at 89 cents, a penny above the Zacks Consensus Estimate. Net interest income in the quarter grew 41.9% year over year to $118.7 million and non-interest income jumped 85.1% to $25.3 million.

Talking of balance sheet of Prosperity Bancshares, total assets grew 7.9% sequentially primarily due to an increase of 17.3% in total loans. Total deposits in the quarter were up by 6.8%. Loan to deposit ratio improved 440 basis points sequentially.

Asset quality was a mixed bag. Net charge-offs were $1.4 million, down 26.3% from $1.9 million in the year-ago quarter. However, nonperforming assets increased 25.2% to $14.9 million.

Prosperity Bancshares posted positive earnings surprise in each of the trailing four quarters, with the average being 1.8%. Solid financial results and the company’s focus on capitalizing promising opportunities and efforts to drive inorganic growth to enhance shareholder value, raises optimism for better results ahead.

Estimate Revisions Show Potency

Over the last 60 days, the Zacks Consensus Estimate for Prosperity Bancshares has increased by 0.3% to $3.59 for 2013 and by 3.6% to $4.00 for 2014, respectively. Also, after the news about the acquisition of F&M Bank, earnings estimate for 2014 increased 3.1% in the last 30 days.  

Prosperity Bancshares currently has a market capitalization of $3.7 billion. Other stocks to watch out for in the industry are Cullen/Frost Bankers, Inc. (CFR - Analyst Report), Enterprise Financial Services Corp. (EFSC - Snapshot Report) and CoBiz Financial Inc. (COBZ - Snapshot Report), each with a Zacks Rank #2 (Buy).

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