Maintaining a Sell on Zions Bank

Zions Bancorporation's (ZION - Analyst Report) first-quarter net earnings of $0.98 per diluted share were substantially below our estimate as well as consensus. The earnings were mostly impacted by the sharp increase in provisions coupled with impairment and valuation losses on securities purchased from Lockhart Funding. Thus, we maintain our Sell recommendation on the shares.

Continued weakness in the southwestern residential real estate markets, where the company has significant exposure, continued to hurt results. Though loan and deposit growth were satisfactory, the net interest margin declined during the quarter. The quarter was also characterized by good expense control.

Based on the first quarter results, continuous challenging market environment, and somewhat pessimistic outlook provided by management, we are moderating our 2008 and 2009 earnings estimate to $4.17 per share and $4.99 per share, respectively. ZION currently trades at 8.4 times the consensus forward estimate, a 37% discount to the peer group median.

Our six-month target price of $34.00 per share equates to 0.72 times our projected book value six months out, or 8.2 times our forward estimate for FY08. Combined with the annual dividend of $1.72 per share, this target price implies a negative return of about 7.4% over the period.

Read the full analyst report on ZION