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Why Is Zions (ZION) Down 3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Zions (ZION - Free Report) . Shares have lost about 3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Zions due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Zions Q2 Earnings Miss Estimates, Revenues Decline Y/Y

Zions’ second-quarter 2020 net earnings per share of 34 cents missed the Zacks Consensus Estimate of 37 cents. Moreover, the bottom line compares unfavorably with the year-ago quarter’s 99 cents.

Results reflect lower net interest and non-interest income, and a significant rise in provision for credit losses. However, an increase in deposit and loan balances, and fall in expenses were positives.

Net income attributable to common shareholders was $57 million, down from the prior-year quarter’s $189 million.

Revenues Decline, Expenses Down

Net revenues were $686 million, down 3.1% year over year. Further, the top line missed the Zacks Consensus Estimate of $694.1 million.

Net interest income was $563 million, down 1.1% from the prior-year quarter. This downside resulted from a fall in interest income. Net interest margin contracted 31 basis points (bps) year over year to 3.23%.

Non-interest income amounted to $117 million, down 11.4% from the year-ago quarter. The decrease resulted from a fall in card fees, retail and business banking fees and capital markets and foreign exchange fees.

Adjusted non-interest expenses were $402 million, down 5% from the prior-year quarter.

Efficiency ratio was 57.3%, down from 59.0% reported in the prior-year period. A fall in efficiency ratio indicates an increase in profitability.

Solid Balance Sheet

As of Jun 30, 2020, net loans held for investment were $54.3 billion, up from the $49.2 billion recorded at the end of the prior quarter. Total deposits were $65.7 billion, up 14.2% from the end of first-quarter 2020.

Credit Quality Deteriorates

The ratio of non-performing assets to loans and leases as well as other real estate owned expanded 10 bps year over year to 0.62%. Provision for credit losses was $168 million compared with $21 million reported in the year-earlier quarter.

Moreover, net loan and lease charge-offs were $31 million at the end of the reported quarter compared with $14 million witnessed in the year-earlier quarter.

Capital & Profitability Ratios Deteriorate

Tier 1 leverage ratio was 8.4% as of Jun 30, 2020, compared with 9.5% recorded at the end of the prior-year quarter. Tier 1 risk-based capital ratio was 11.2%, down from the year-ago quarter’s 11.8%.

At the end of the June-end quarter, return on average assets was 0.35%, down from 1.14% as of Jun 30, 2019. Also, return on average tangible common equity was 3.8%, down from 12.7% in the year-ago quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Zions has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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 aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Zions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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