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Analyst Blog

On Sep 27, 2013, we reaffirmed our long-term recommendation on Prosperity Bancshares Inc. (PB - Analyst Report) at Neutral. This was based on the company’s continuous organic and inorganic expansion as well as robust second-quarter results. However, we remain concerned about the company’s rising expenses.

Why the Neutral Stance?

Acquisitions have always been a crucial part of Prosperity Bancshares’ growth strategy. They are expected to increase the company’s geographical footprint and boost its market presence in the existing areas. Moreover, continuously improving credit quality and strong revenue growth were other major positives.

Moreover, Prosperity Bancshares’ second-quarter 2013 earnings marginally beat the Zacks Consensus Estimate. Results were aided by top-line growth, partially offset by higher operating expenses and a rise in provision for loan losses.

The Zacks Consensus Estimate for 2013 rose by a penny to $3.59 per share over the last 60 days. Moreover, for 2014, the Zacks Consensus Estimate increased 3.6% to $4.00 per share over the same time frame. The company currently carries a Zacks Rank #2 (Buy).

However, continuous deposit pricing pressure, sluggish loan demand and a low interest-rate environment – which would weigh on Prosperity Bancshares’ net interest margin – are headwinds for revenues. Also, slow economic growth rate, exposure to the real estate loan portfolio and stringent regulations will likely dent Prosperity Bancshares’ financials in the near term.

Other Banks to Consider

Some financial stocks that are worth a look include Astoria Financial Corp. (AF - Snapshot Report), Nationstar Mortgage Holdings Inc. (NSM - Snapshot Report) and BofI Holding, Inc. (BOFI - Snapshot Report). All of these carry a Zacks Rank #1 (Strong Buy).

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