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Zions (ZION) Up 5.5% Since Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for Zions Bancorporation (ZION - Free Report) . Shares have added about 5.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Zions' Q4 Earnings Beat Estimates; Revenues Rise
Zions reported fourth-quarter 2016 earnings of $0.60 per share, which handily surpassed the Zacks Consensus Estimate of $0.52. Moreover, the figure compared favorably with the year-ago earnings of $0.43.
Better-than-expected quarterly results largely benefited from higher revenues and benefits from provisions. Also, driven by cost saving efforts, the company recorded a marginal fall in operating expenses. Further, growth in deposits and stable loan balances supported the results. However, deteriorating asset quality and capital position remained headwinds.
Net income applicable to common shareholders came in at $125 million, up 41.7% from the year-ago quarter.
For 2016, earnings of $1.99 per share beat the Zacks Consensus Estimate of $1.92. Also, it was up 65.8% year over year. Net income available to common shareholders was $411.3 million, an increase of 66.8% from 2015.
Rising Revenues Support Results
Net revenue (FTE basis) for the quarter were $608.7 million, up 7.3% year over year. However, the figure lagged the Zacks Consensus Estimate of $612.7 million.
For 2016, net revenue (on FTE basis) grew 13% year over year to $2.38 billion. Nonetheless, this was below the Zacks Consensus Estimate of $2.40 billion.
Net interest income increased 7% year over year to $480.5 million. Further, net interest margin improved 14 basis points (bps) year over year to 3.37%.
Non-interest income amounted to $128.2 million, up 8.1% from the year-ago quarter. The improvement reflected an increase in all fee income components except loan sales and servicing income, capital markets and foreign exchange as well as net equity securities losses.
Adjusted non-interest expenses fell 1% from the year-ago quarter to $395.1 million. Further, efficiency ratio was 64.5%, down from 69.6% a year ago. A fall in efficiency ratio indicates an improvement in profitability.
Strong Balance Sheet
As of Dec 31, 2016, total loans, net of allowance, were almost in line with the prior quarter at $42.1 billion. Also, total deposits rose 4.7% from the previous quarter to $53.2 billion.
Credit Quality Weakens
The ratio of nonperforming lending-related assets to net loans and leases as well as other real estate owned increased 50 bps year over year to 1.34%. Further, net charge-offs were $27 million, up from $13 million in the year-ago quarter.
Nonetheless, benefits from provisions for loan losses were $2.7 million, compared with a provision of $22.7 million in the prior-year quarter.
Capital Ratios Deteriorate but Profitability Improve
Under the Basel III rules, Tier 1 leverage ratio came in at 11.1%, as of Dec 31, 2016, down from 11.3% in the prior-year quarter. Tier 1 risk-based capital ratio came in at 13.5% compared with 14.1% in the year-ago quarter.
Return on average assets was 0.89% as of Dec 31, 2016, up from 0.68% as of Dec 31, 2015. Also, as of Dec 31, 2016, tangible return on average tangible common equity was 8.40%, up from 6.20% a year ago.
Outlook
Management expects net interest income to rise at mid to high single-digit range in 2017, driven by continued growth in loans and securities, while a slight rise in funding costs is expected to hurt to some extent. Notably, this doesn’t include any further rate hikes. Net interest margin for the first quarter is expected to benefit from the Fed rate hike in Dec 2016.
Further in 2017, non-interest income (excluding dividends and securities gains/losses) is projected to increase moderately.
Zions expects adjusted non-interest expense to increase 2–3% year over year in 2017. The rise is expected to be a result of continued spending on technology systems overhaul, increase in technological expenditure and normal salary adjustments. The rise in expenses is expected to be partially offset by the cost saving efforts.
Management expects effective tax rate to be in the range of 34–35% in 2017, assuming no changes to the corporate tax rate.
Preferred dividends are expected to be approximately $40 million. By the first half of 2017, management expects preferred equity to reduce by $144 million. Further, an increase in the count of diluted shares is expected to increase on account of warrant dilution, partially offset by share buyback.
Loan balance is expected to increase moderately in 2017, largely driven by strong growth in residential mortgage, marginal growth in non-O&G construction & industrial, construction and land development (C&D) and term commercial real estate (CRE) portfolio. These will be partially offset by attrition in O&G and National Real Estate loan portfolios.
Notably, provision for credit losses is expected to be similar to the level experienced in 2016, on the assumption that energy prices remain at the current level. The company also expects O&G loan losses to decline substantially year over year.
Net charge offs for non O&G portfolio is expected to increase slightly on a year over year basis, assuming that the recoveries may not be substantial.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted by 5.53% due to these changes.
At this time, Zions' stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
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Zions (ZION) Up 5.5% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Zions Bancorporation (ZION - Free Report) . Shares have added about 5.5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Zions' Q4 Earnings Beat Estimates; Revenues Rise
Zions reported fourth-quarter 2016 earnings of $0.60 per share, which handily surpassed the Zacks Consensus Estimate of $0.52. Moreover, the figure compared favorably with the year-ago earnings of $0.43.
Better-than-expected quarterly results largely benefited from higher revenues and benefits from provisions. Also, driven by cost saving efforts, the company recorded a marginal fall in operating expenses. Further, growth in deposits and stable loan balances supported the results. However, deteriorating asset quality and capital position remained headwinds.
Net income applicable to common shareholders came in at $125 million, up 41.7% from the year-ago quarter.
For 2016, earnings of $1.99 per share beat the Zacks Consensus Estimate of $1.92. Also, it was up 65.8% year over year. Net income available to common shareholders was $411.3 million, an increase of 66.8% from 2015.
Rising Revenues Support Results
Net revenue (FTE basis) for the quarter were $608.7 million, up 7.3% year over year. However, the figure lagged the Zacks Consensus Estimate of $612.7 million.
For 2016, net revenue (on FTE basis) grew 13% year over year to $2.38 billion. Nonetheless, this was below the Zacks Consensus Estimate of $2.40 billion.
Net interest income increased 7% year over year to $480.5 million. Further, net interest margin improved 14 basis points (bps) year over year to 3.37%.
Non-interest income amounted to $128.2 million, up 8.1% from the year-ago quarter. The improvement reflected an increase in all fee income components except loan sales and servicing income, capital markets and foreign exchange as well as net equity securities losses.
Adjusted non-interest expenses fell 1% from the year-ago quarter to $395.1 million. Further, efficiency ratio was 64.5%, down from 69.6% a year ago. A fall in efficiency ratio indicates an improvement in profitability.
Strong Balance Sheet
As of Dec 31, 2016, total loans, net of allowance, were almost in line with the prior quarter at $42.1 billion. Also, total deposits rose 4.7% from the previous quarter to $53.2 billion.
Credit Quality Weakens
The ratio of nonperforming lending-related assets to net loans and leases as well as other real estate owned increased 50 bps year over year to 1.34%. Further, net charge-offs were $27 million, up from $13 million in the year-ago quarter.
Nonetheless, benefits from provisions for loan losses were $2.7 million, compared with a provision of $22.7 million in the prior-year quarter.
Capital Ratios Deteriorate but Profitability Improve
Under the Basel III rules, Tier 1 leverage ratio came in at 11.1%, as of Dec 31, 2016, down from 11.3% in the prior-year quarter. Tier 1 risk-based capital ratio came in at 13.5% compared with 14.1% in the year-ago quarter.
Return on average assets was 0.89% as of Dec 31, 2016, up from 0.68% as of Dec 31, 2015. Also, as of Dec 31, 2016, tangible return on average tangible common equity was 8.40%, up from 6.20% a year ago.
Outlook
Management expects net interest income to rise at mid to high single-digit range in 2017, driven by continued growth in loans and securities, while a slight rise in funding costs is expected to hurt to some extent. Notably, this doesn’t include any further rate hikes. Net interest margin for the first quarter is expected to benefit from the Fed rate hike in Dec 2016.
Further in 2017, non-interest income (excluding dividends and securities gains/losses) is projected to increase moderately.
Zions expects adjusted non-interest expense to increase 2–3% year over year in 2017. The rise is expected to be a result of continued spending on technology systems overhaul, increase in technological expenditure and normal salary adjustments. The rise in expenses is expected to be partially offset by the cost saving efforts.
Management expects effective tax rate to be in the range of 34–35% in 2017, assuming no changes to the corporate tax rate.
Preferred dividends are expected to be approximately $40 million. By the first half of 2017, management expects preferred equity to reduce by $144 million. Further, an increase in the count of diluted shares is expected to increase on account of warrant dilution, partially offset by share buyback.
Loan balance is expected to increase moderately in 2017, largely driven by strong growth in residential mortgage, marginal growth in non-O&G construction & industrial, construction and land development (C&D) and term commercial real estate (CRE) portfolio. These will be partially offset by attrition in O&G and National Real Estate loan portfolios.
Notably, provision for credit losses is expected to be similar to the level experienced in 2016, on the assumption that energy prices remain at the current level. The company also expects O&G loan losses to decline substantially year over year.
Net charge offs for non O&G portfolio is expected to increase slightly on a year over year basis, assuming that the recoveries may not be substantial.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted by 5.53% due to these changes.
Zions Bancorporation Price and Consensus
Zions Bancorporation Price and Consensus | Zions Bancorporation Quote
VGM Scores
At this time, Zions' stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregte VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Outlook
Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.