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With BRIC countries all the rage these days, investors often overlook other strong emerging markets. Through free market reforms and a stable political climate, Colombia has been one of Latin America's strongest economies over the last several years.

Bancolombia (CIB - Free Report) is Colombia's largest bank and stands to benefit from continued economic growth. The company recently reported a strong third quarter marked by solid loan demand and improving credit trends.

Despite a nice run up in the share price, valuation still remains reasonable for this Zacks #2 Rank (Buy) stock.

Third Quarter Results

The company reported third quarter earnings per share of $1.06, beating the Zacks Consensus Estimate by 17 cents. It was a 17% increase year-over-year.

Net loans grew 7.8% compared to the third quarter of 2009, driven by an 11% increase in mortgage loans. This led to a 1.2% increase in net interest income. The net interest margin, essentially the spread between the interest it received from loans and what it paid out on deposits, declined from 6.3% to 6.2%, however.

Credit quality was much better, as charge-offs declined 27% from the same quarter in 2009. Net provisions for loan losses decline 18% over the same period.

Fee income increased 5.8% due to higher income from credit cards and banking services.


Estimates have been rising since Bancolombia reported third quarter results on November 3.

The Zacks Consensus Estimate for 2010 is $3.66, representing a 17% increase year-over-year. The 2011 estimate is currently $4.42, corresponding to 21% annual growth.


Shares of Bancolombia are up over 50% since early May.

CIB: Bancolombia

Despite the huge run up, shares don't appear to be grossly overvalued. The stock trades at 18.1x forward estimates, a premium to the industry average of 13.7x, but within reason given the company's above-average growth rates.

Its price to book ratio of 3.1 is also above the peer group average, which is 1.4. However, its return on equity is a solid 19.5%, well above the industry average of 10.8%. This helps justify the higher book value multiple.

Bancolombia also offers a dividend yield of 2.0%.

Todd Bunton is the Growth & Income Stock Strategist for

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