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Shares of Zions Bancorp. (ZION - Analyst Report) have recorded a solid year-to-date return of 31.5%. This was driven by impressive organic growth, continuous improvement in credit quality and strategic acquisitions. Hence, keeping its shares in your portfolio will not be a bad idea.

However, we are not so confident about the above factors translating into further price appreciation going forward due to anticipated pressure on the company’s bottom line amid the sluggish economic recovery and stringent regulatory requirements. Therefore, we do not encourage fresh addition of Zions shares to your portfolio.

Why This Stance?

Zions’ third-quarter 2013 earnings per share outpaced the Zacks Consensus Estimate. Results benefited from lower operating expenses, improved credit quality and a strong capital position. However, decline in the top line was a headwind for the quarter.

Zions’ continuous efforts in converting a part of its debt to equity enhance return on equity and improve non-interest demand deposits as well, which in turn will likely reduce interest expenses. All these are expected to boost top-line growth. Further, the company has presence in regions that are witnessing improved economic activity. Hence, the company achieved solid organic loan growth as well.

However, we expect continuous deposit pricing pressure, a weak loan demand and the higher cost of funding to affect net interest income and revenues. Moreover, excess liquidity poses a risk to the company’s earnings amid a persistent low interest rate environment.

Over the last 30 days, the Zacks Consensus Estimate for 2013 and 2014 remained almost stable at $2.34 per share and $1.85 per share, respectively. Hence, Zions currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

If you are interested in West Banks, you may consider better-ranked stocks like BofI Holding, Inc. (BOFI - Snapshot Report), Preferred Bank (PFBC - Snapshot Report) and Sierra Bancorp (BSRR - Snapshot Report). All these stocks carry a Zacks Rank #1 (Strong Buy).

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