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Why Is Zions (ZION) Up 5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Zions (ZION - Free Report) . Shares have added about 5% 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 its most recent earnings report in order to get a better handle on the important drivers.

Zions Q3 Earnings Beat Despite Decline in Revenues

Zions’ third-quarter 2021 net earnings per share of $1.45 surpassed the Zacks Consensus Estimate of $1.38. The bottom line represents an increase of 43.6% from the year-ago quarter’s number.

Results were primarily aided by a decline in expenses and provision benefits. The company witnessed a rise in deposit balances in the quarter. However, net interest income (NII) remained unchanged year over year, while non-interest income witnessed a fall.

Net income attributable to common shareholders was $234 million, up 40.1% from the prior-year quarter’s figure.

Revenues & Expenses Decline

Net revenues (tax equivalent) were $701 million, down 2.5% year over year. The top line missed the Zacks Consensus Estimate of $708.4 million.

NII was $555 million, unchanged from the prior-year quarter. Net interest margin contracted 38 basis points (bps) year over year to 2.68%.

Non-interest income was $139 million, down 11.5% from the year-ago quarter. The decline was due to a fall in fair value and non-hedge derivative income. Also, the company recorded net securities losses in the quarter under review against net gains in the year-ago quarter.

Adjusted non-interest expenses were $432 million, down 1.8% from the prior-year quarter.

Efficiency ratio was 59.8%, down from 62.2% reported in the prior-year period. A fall in the efficiency ratio indicates an improvement in profitability.

As of Sep 30, 2021, net loans held for investment were $50.2 billion, down 1.3% from the prior quarter’s end. Total deposits were $77.9 billion, up 2.3% sequentially.

Credit Quality Improves

The ratio of non-performing assets to loans and leases as well as other real estate owned contracted 4 bps year over year to 0.64%. In the reported quarter, the company recorded net loan and lease recoveries of $1 million against charge-offs of $52 million in the prior-year quarter.

Provision for credit losses was a benefit of $46 million against a provision of $55 million reported in the year-earlier quarter.

Capital Ratios Mixed, Profitability Ratios Improve

Tier 1 leverage ratio was 7.6% as of Sep 30, 2021, compared with 8.3% recorded at the end of the prior-year quarter. Tier 1 risk-based capital ratio of 11.6% increased from 11.4%.

At the end of the reported quarter, return on average assets was 1.08%, up from 0.89% as of Sep 30, 2020. Also, return on average tangible common equity was 14.2%, up from 11% witnessed in the year-ago quarter.

Share Repurchase Update

During the quarter, Zions repurchased 5.8 million shares for $325 million.

Outlook

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

Loans (excluding PPP loans) are expected to witness moderate growth.

NII (excluding PPP loan income and assumes no change in interest rates) is projected to increase.

Customer-related fees (excluding securities gains and dividends) are expected to remain stable and/or grow slightly.

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

How Have Estimates Been Moving Since Then?

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

VGM Scores

Currently, Zions has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions indicates a downward shift. 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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