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Here's Why You Should Hold Prosperity Bancshares (PB) Stock

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Prosperity Bancshares’(PB - Free Report) decent growth in loan balances and improving deposit mix are likely to aid revenues in the days to come. Also, the bank’s inorganic growth efforts are commendable. However, lower interest rates, mounting expenses and weakness in the mortgage business are concerns.

Prosperity Bancshares’ organic growth efforts are impressive. Its net revenues witnessed a compound annual growth rate (CAGR) of 9.1% over the last six years (2015-2020), mainly driven by a increase in loan balances. A decent rise in demand for loans, along with a solid deposit mix is expected to continue supporting the company’s revenues in the upcoming quarters.

Acquisitions remain another major contributor to the company’s top-line growth. Prosperity Bancshares has significantly expanded its operations through the buyout of community banks and branches of other banks. Notably, it has completed more than 30 deals since 1998. These deals are not only accretive to the company’s top line but have also significantly boosted the bottom line.

The company’s capital-deployment initiatives also look encouraging. Prosperity Bancshares has been consistently increasing its dividend annually since 1999, with the latest hike in October 2020. Further, in January 2021, it announced a share repurchase program (expiring in January 2022) to buy back up to 4.65 million shares. Given the company’s strong capital base and liquidity positions, its robust capital-deployment activities seem sustainable.

Notably analysts seem to have an optimistic stance for the stock. The Zacks Consensus Estimate for 2021 and 2022 earnings has moved 4.3% and 1% upward, respectively, over the past 60 days.

Nevertheless, pressure on net interest margin (NIM) is a major concern for Prosperity Bancshares. Though the NIM increased in 2020 and 2019, it had been declining prior to that. And given the near-zero interest rate environment, along with the Federal Reserve signaling no rate hike anytime soon, the NIM is expected to remain under pressure.

Also, the company’s mounting expenses on account of investments in franchises and growth through acquisitions, along with higher salaries and benefits expenses, might deter bottom-line growth in the near term. Expenses witnessed a CAGR of 9.7% over the six-year period ended 2020. The costs are expected to remain elevated in the quarters ahead.

Shares of this Zacks Rank #3 (Hold) company have rallied 35.7% over the past six months, underperforming the industry’s growth of 41%.

 

Stocks to Consider

Enova International, Inc. (ENVA - Free Report) has been witnessing upward estimate revisions of 4% for current-year earnings for the past 30 days. Shares of this company have appreciated 79.3% over the past six months. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mr. Cooper Group Inc (COOP - Free Report) recorded an upward earnings estimate revision of 29.5% for 2021 earnings in the past 30 days. Shares of this company have rallied 84.4% in six months’ time. Currently, it flaunts a Zacks Rank of 1.

ServisFirst Bancshares, Inc. (SFBS - Free Report) has witnessed an upward earnings estimate revision of 8.5% for ongoing-year earnings in 30 days’ time. Shares of this company have rallied 34.9% over the past six months. At present, it sports a Zacks Rank of 1.

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