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On Mar 18, 2013, we reaffirmed our long-term recommendation on Zions Bancorp. (ZION - Analyst Report) at Neutral. This reflects the company’s fourth-quarter results, which significantly outpaced the Zacks Consensus Estimate.

Why Neutral?

Zions’ fourth-quarter earnings stood at 44 cents per share, 10% higher than the Zacks Consensus Estimate of 40 cents. After considering certain non-recurring items, the company’s fourth-quarter earnings were down nearly 44% from the prior quarter.

On a sequential basis, results were adversely impacted by lower revenues and a rise in operating expenses. Yet, continuously improving credit quality, stable capital and profitable ratios as well as growth in deposits and loans were among the tailwinds.

Following fourth-quarter results, the Zacks Consensus Estimate for 2013 fell by a penny to $1.69 per share over the last 60 days. The Zacks Consensus Estimate for 2014 also declined (down 2.1% to $1.90 per share). Hence, Zions currently has a Zacks Rank #3 (Hold).

In mid-Mar 2013, Zions’ capital plan was partly approved by the Federal Reserve. Though the company did not ask for any additional capital deployment, its strategy to strengthen balance sheet through redemption of trust preferred securities and long-term debt will definitely prove beneficial to the results going forward.

Nevertheless, continuous deposit pricing pressures, sluggish loan demand and low rate environment along with a growth in higher-cost funding accounts are expected to weigh on Zions’ net interest margin (NIM), creating headwinds on the revenue front. Further, low-yield investments will likely negatively impact the company’s NIM.

Other Stocks Worth Considering

While we prefer Zions, other west-bank stocks that are worth a look include Columbia Banking System Inc. (COLB - Snapshot Report), Western Alliance Bancorporation (WAL - Snapshot Report) and Bridge Capital Holdings (BBNK - Snapshot Report). The first two stocks carry a Zacks Rank #1 (Strong Buy), while Bridge Capital has a Zacks Rank # 2 (Buy).

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