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High Costs, Margin Pressure to Hurt Prosperity Bancshares (PB)
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Prosperity Bancshares’ (PB - Free Report) profits will likely be hurt in the near term because of a continued rise in expenses. Uncertainty about the performance of the mortgage banking business due to rising mortgage rates is another major concern and makes us apprehensive.
Analysts are also not very optimistic regarding PB’s earnings growth prospects. The Zacks Consensus Estimate for its current-year earnings has been revised marginally lower over the past 30 days. As a result, PB currently carries a Zacks Rank #4 (Sell).
Over the past six months, shares of the company have lost 8.7% compared with the industry’s decline of 21%.
Image Source: Zacks Investment Research
Looking at its fundamentals, Prosperity Bancshares’ expenses have witnessed a five-year (ended 2022) compound annual growth rate (CAGR) of 10.4%. The increase was mainly due to higher salaries and benefits costs. Overall costs are expected to be elevated as the company continues to invest in franchises, grow through acquisitions and stay under inflationary pressure.
Moreover, while the company’s net interest margin (NIM) increased in 2019 and 2020, it witnessed a decline before that. The downward trend persisted in 2021 and 2022 (despite the Federal Reserve’s policy to aggressively raise rates to control the raging inflation). Despite higher interest rates, the company’s NIM is expected to be under pressure for some time in the near term.
In the first quarter of 2023, the company expects NIM to be a bit flattish because of the re-pricing of deposits.
Further, uncertainty about the performance of Prosperity Bancshares’ mortgage banking business is worrisome. While its mortgage income increased in 2020 and 2019, supported by low mortgage rates, the same witnessed a decline in the years before that. In 2021, mortgage income plunged, with the downtrend persisting in 2022. Rising mortgage rates have been adversely impacting mortgage origination volumes and refinancing activities. Thus, the company’s mortgage banking business performance is expected to get hurt in the quarters ahead.
Nevertheless, PB’s plan to expand further in Texas via strategic acquisitions is expected to be accretive to earnings, going forward. Moreover, supported by robust loans, deposit balances and a solid balance sheet, the company remains well-positioned for top-line growth.
Earnings estimates for BK have been revised 2.5% upward for 2023 over the past 60 days. BNY Mellon’s share price has rallied 13.6% over the past six months.
First Horizon’s earnings estimates have been revised upward by 1% for the current year over the past 60 days. In six months’ time, FHN’s share price has declined 24.4%.
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High Costs, Margin Pressure to Hurt Prosperity Bancshares (PB)
Prosperity Bancshares’ (PB - Free Report) profits will likely be hurt in the near term because of a continued rise in expenses. Uncertainty about the performance of the mortgage banking business due to rising mortgage rates is another major concern and makes us apprehensive.
Analysts are also not very optimistic regarding PB’s earnings growth prospects. The Zacks Consensus Estimate for its current-year earnings has been revised marginally lower over the past 30 days. As a result, PB currently carries a Zacks Rank #4 (Sell).
Over the past six months, shares of the company have lost 8.7% compared with the industry’s decline of 21%.
Image Source: Zacks Investment Research
Looking at its fundamentals, Prosperity Bancshares’ expenses have witnessed a five-year (ended 2022) compound annual growth rate (CAGR) of 10.4%. The increase was mainly due to higher salaries and benefits costs. Overall costs are expected to be elevated as the company continues to invest in franchises, grow through acquisitions and stay under inflationary pressure.
Moreover, while the company’s net interest margin (NIM) increased in 2019 and 2020, it witnessed a decline before that. The downward trend persisted in 2021 and 2022 (despite the Federal Reserve’s policy to aggressively raise rates to control the raging inflation). Despite higher interest rates, the company’s NIM is expected to be under pressure for some time in the near term.
In the first quarter of 2023, the company expects NIM to be a bit flattish because of the re-pricing of deposits.
Further, uncertainty about the performance of Prosperity Bancshares’ mortgage banking business is worrisome. While its mortgage income increased in 2020 and 2019, supported by low mortgage rates, the same witnessed a decline in the years before that. In 2021, mortgage income plunged, with the downtrend persisting in 2022. Rising mortgage rates have been adversely impacting mortgage origination volumes and refinancing activities. Thus, the company’s mortgage banking business performance is expected to get hurt in the quarters ahead.
Nevertheless, PB’s plan to expand further in Texas via strategic acquisitions is expected to be accretive to earnings, going forward. Moreover, supported by robust loans, deposit balances and a solid balance sheet, the company remains well-positioned for top-line growth.
Stocks to Consider
A couple of better-ranked finance stocks are The Bank of New York Mellon Corporation (BK - Free Report) and First Horizon Corporation (FHN - Free Report) . Both companies currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings estimates for BK have been revised 2.5% upward for 2023 over the past 60 days. BNY Mellon’s share price has rallied 13.6% over the past six months.
First Horizon’s earnings estimates have been revised upward by 1% for the current year over the past 60 days. In six months’ time, FHN’s share price has declined 24.4%.