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Cullen/Frost Rides High on Organic Growth

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On Jun 30, 2014, we issued an updated research report on Cullen/Frost Bankers, Inc. (CFR - Free Report) . Driven by strong top-line performance, the company’s first-quarter 2014 earnings were encouraging. Impressive organic growth, capital adequacy and expansion through recent acquisitions were the driving factors behind the results.

Organic growth remains a key strength at Cullen/Frost, as reflected in its revenues. Revenues grew at a CAGR of 2.7% over the last five years (2009–2013). Moreover, net revenue increased 3.1% year over year in first-quarter 2014. We believe that the company is well positioned to maintain this trend going forward.

Cullen/Frost continues to expand through acquisitions. In May 2014, in an attempt to increase its footprint in Texas, the company completed the merger with WNB Bancshares, Inc. This marks the first bank acquisition for Cullen/Frost since 2006 when it bought Fort Worth-based Summit Bancshares Inc. The merger will enable Cullen/Frost to reinforce its Texas franchise and enter the profitable Midland and Odessa markets.

Moreover, with a sound balance sheet and capital position, Cullen/Frost has a competitive advantage over other banks. Additionally, backed by its strong liquidity position, Cullen/Frost has been consistently paying dividends.

Nevertheless, with the growing level of non-interest expenses, the company is exposed to operational risks. Notably, non-interest expenses rose 1.3% year over year in first-quarter 2014.

For Cullen/Frost, the Zacks Consensus Estimate for 2014 and 2015 remained stable at $4.13 and 4.36, respectively, over the last 60 days. Hence, Cullen/Frost currently has a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked finance stocks include Comerica Incorporated (CMA - Free Report) , KeyCorp. (KEY - Free Report) and Monarch Financial Holdings, Inc. . All of these carry a Zacks Rank #2 (Buy).

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