On Nov 14, 2016, we issued an updated research report on Prosperity Bancshares Inc. (PB - Free Report) . The company’s organic growth remains impressive, supported by a strong balance sheet position and asset quality. However, higher expenses and a concentrated loan portfolio are expected to hurt its financials.
The company remains well positioned for organic growth. Notably, net revenue increased at a CAGR of 15.1% over the last six years (2010−2015). Also, revenues are expected to grow in the coming few quarters, driven by growth in loans.
Moreover, the company’s continuous dividend hikes enhance investors’ confidence. Notably, in Oct 2016, the company hiked its quarterly dividend by 13.3%. Additionally, its share repurchase program remains on track. Also, enhanced capital deployment activities are expected to continue, backed by the company’s strong balance sheet position.
Further, improving credit quality and a rise in net interest margin are likely to benefit the company in the near term.
However, Prosperity Bancshares’ expenses, which have remained toward the higher side, are expected to rise further, given its investment in franchise. Notably, non-interest expenses have increased at a CAGR of 16.5% for the four-year period (2012–2015).
Also, the company has a major portion of its loan portfolio consisting of real estate loans. Despite a rebound in the housing sector, any deterioration in the real estate prices will likely exert pressure on its financials. Moreover, the company has almost 3.2% of energy loan exposure, which remains a matter of concern in the near term.
Further, stringent regulations are expected to hurt the company’s financials in the near term.
Currently, Prosperity Bancshares carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the finance space worth a look include Carolina Financial Corporation (CARO - Free Report) , Farmers Capital Bank Corporation (FFKT - Free Report) and Ameris Bancorp (ABCB - Free Report) .
Carolina Financial has witnessed an upward earnings estimate revision of 12.9% for the current year over the past 30 days. Moreover, its share price is up 40.9% year to date. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Farmers Capital also carries a Zacks Rank #1. It has witnessed an upward earnings estimate revision of nearly 8.3% for the current year over the past 30 days. Its share price is up 22.1% year to date.
Ameris Bancorp, with a Zacks Rank #2 (Buy), has witnessed an upward earnings estimate revision of 1.3% for the current year over the past 30 days. Also, its share price has gained 25.2% year to date.
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