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Zions (ZION) Up 11.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Zions (ZION - Free Report) . Shares have added about 11.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Zions due for a pullback? 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 drivers.

Zions Q1 Earnings & Revenues Top Estimates, Costs Rise Y/Y

Zions’ first-quarter 2021 net earnings per share of $1.90 surpassed the Zacks Consensus Estimate of $1.15. Also, the bottom line marked a significant improvement from 4 cents earned in the year-ago quarter.

Results were aided by an increase in non-interest income and provision benefits. Also, the company witnessed a rise in loans and deposit balance during the quarter. However, a fall in net interest income (NII) due to lower rates and a rise in expenses were the headwinds.

Net income attributable to common shareholders was $314 million, up substantially from the prior-year quarter’s $6 million.

Revenues Improve, Expenses Rise

Net revenues (on a taxable-equivalent basis) were $722 million, up 4.8% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $691 million.

NII (taxable equivalent) was $553 million, down marginally. NIM contracted 55 basis points (bps) year over year to 2.86%.

Non-interest income was $169 million, jumping 26.1% from the year-ago quarter. The increase was largely driven by improvement in fair value and non-hedge derivative income, and net securities gains, partially offset by lower total customer-related fees.

Adjusted non-interest expenses were $440 million, up 8.1% from the prior-year quarter.

Efficiency ratio was 63.5%, up from 57.7% reported in the prior-year period. A rise in efficiency ratio indicates deterioration in profitability.

As of Mar 31, 2021, net loans held for investment were $52.8 billion, up slightly from the prior quarter. Total deposits were $73.9 billion, up 6%.

Credit Quality: Mixed Bag

The ratio of non-performing assets to loans and leases as well as other real estate owned expanded 5 bps year over year to 0.61%. Also, net loan and lease charge-offs were $8 million, up 14.3%.

However, provision for credit losses was a benefit of $132 million against a provision of $258 million reported in the year-earlier quarter.

Capital Ratios Mixed, Profitability Ratios Improve

Tier 1 leverage ratio was 8.3% as of Mar 31, 2021, compared with 9.0% recorded at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 12.2% increased from 11.0%.

At the end of the March quarter, return on average assets was 1.57%, up from 0.08% as of Mar 31, 2020. Also, return on average tangible common equity was 20.2%, up from 0.40% witnessed in the year-ago quarter.

Outlook

The company has provided outlook for financial performance in the first quarter of 2022 on a year-over-year basis. The quarters in between are subject to normal seasonality.

Loan growth [excluding paycheck protection program (PPP) loans] is expected at a low-single-digit rate.

NII (excluding PPP loan income) is projected to increase slightly.

Customer-related fees (excluding securities gains and dividends) are expected to grow modestly.

On the cost front, adjusted non-interest expenses are likely to remain stable or increase slightly.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, Zions has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. 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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