Shares of Cullen/Frost Bankers, Inc. (CFR - Free Report) have recorded a return of 37.5% in 2013. Impressive organic growth, capital adequacy and expansion through recent acquisitions acted as the positives behind this growth story, but we are not so optimistic about these positives translating to further price appreciation down the road as there will be significant pressure due to its rising level of non-interest expenses.
After analyzing its fundamentals following the third-quarter 2013 earnings release, we would suggest to stay invested in it but not to further add it to your portfolio.
Why this Stance?
With the growing level of deposits, Cullen/Frost has expanded organically. The level of deposits increased 2.6% in the first nine months of 2013. The growing deposit base should help the company generate loans and meet other general business purposes.
Cullen/Frost looks attractive for income-seeking investors due to its steady capital deployment activities. In Apr 2013, the company announced a 4% hike in its quarterly cash dividend on common stock. Moreover, the company has increased dividend every year since the financial crisis in 2008.
During third-quarter 2013, in an attempt to expand its footprint in Texas, Cullen/Frost signed a definitive merger agreement with WNB Bancshares, Inc. The merger will enable Cullen/Frost to reinforce its Texas franchise and enter the profitable Midland and Odessa markets.
However, with the growing level of non-interest expenses, the company is exposed to operational risks. Non-interest expenses surged 6.6% year over year in the first nine months of 2013. Continuation of this trend will remain a hindrance for bottom-line growth.
For Cullen/Frost, over the last 60 days, the Zacks Consensus Estimate for 2013 and 2014 remained stable at $3.78 and $4.08 per share, respectively. Currently, Cullen/Frost carries a Zacks Rank #4 (Sell).
Other Stocks to Consider
Some better-ranked Southwest banks include ViewPoint Financial Group, Inc. with a Zacks Rank #1 (Strong Buy), while Southside Bancshares Inc. (SBSI - Free Report) and Texas Capital BancShares Inc. (TCBI - Free Report) carry a Zacks Rank #2 (Buy).