On Sep 30, we issued an updated research report on Cullen/Frost Bankers, Inc. (CFR - Free Report) . The company has been witnessing steady revenue growth for the past several years and has a strong liquidity position. Also, its involvement in steady capital deployment activities seems encouraging. However, significant exposure to real estate loan portfolios and a continued rise in operating expenses make us apprehensive.
The Zacks Consensus Estimate for its current-year earnings has been revised slightly downward over the past 30 days.
Shares of this Zacks Rank #3 (Hold) company have gained 15.6% over the past six months compared with 12.8% growth recorded by the industry.
Cullen/Frost’s organic growth looks impressive. Revenues witnessed a CAGR of 6.4% over the last five years (2015-2019). Moreover, the low-cost funding source — non-interest bearing deposits — representing more than 40% of total deposits, is anticipated to aid net interest income and margin.
The bank has a decent debt position. As of Jun 30, 2020, the company had debt of $1.82 billion, increasing from the past few quarters. Its debt-capital ratio, currently 0.05, has remained stable over the same period. Also, time-interest-earned ratio has increased slightly in the past few quarters and is currently at 18.2X. Thus, we believe Cullen/Frost carries low credit risk.
Also, the company’s capital deployment activities seem sustainable given its decent liquidity position. In April 2019, it hiked quarterly stock dividend by 6%. Notably, it has increased dividends annually for 26 consecutive years. Also, in July 2019, its board of directors approved a $100-million common stock repurchase program. This reflects the company’s commitment to return value to its shareholders, backed by a strong capital position.
However, Cullen/Frost’s non-interest expenses have been mounting over the years. The same witnessed a CAGR of 3.3% over the last five years (2015-2019), primarily due to rise in almost all cost components.The company expects costs for 2020 to rise 6% year over year.
Also, Cullen/Frost’s significant exposure to the real estate sector is a concern. As of Jun 30, 2020, the company’s exposure to these loan portfolios was about 44% of the total loans. Though the housing sector has been showing signs of improvement, any further deterioration in real estate prices will act as a headwind.
Stocks to Consider
BancorpSouth Bank (BXS - Free Report) has witnessed upward earnings estimate revisions for 2020 over the past 60 days. This Zacks #2 Ranked (Buy) stock has gained 1.5% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
City Holding Company’s (CHCO - Free Report) ongoing-year earnings estimates have moved up in the past 60 days. The company’s shares have declined 12.2% over the past six months. At present, it carries a Zacks Rank of 2.
First Financial Corporation Indiana (THFF - Free Report) current-year earnings estimates have moved north in 60 days’ time. The stock has lost 4.1% over the past six months. It currently sports a Zacks Rank #1.
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