Banking stocks, which were off investors’ radar for quite some time now, are regaining strength following the better-than-expected Q3 earnings season. Also, with Donald Trump elected to be the President, the banks expect lesser regulations. Further, with higher chances of the Fed raising rates next month, banking stocks are expected to witness an improvement in revenues in the quarters ahead.
These factors have driven significant investor interest for banking stocks. Therefore, bank stocks are trending upward. One such stock is Zions Bancorporation (ZION - Free Report) , which has surged more than 37% year to date. In comparison, S&P 500 just rose nearly 7% over the same time frame.
In addition, Zions boasts strong fundamentals and improving prospects. Analysts too seem to be optimistic about the company’s prospects as evident from upward estimate revisions for 2016 and 2017, over the last 30 days.
Moreover, this Zacks Rank #2 (Buy) stock has an impressive earnings surprise history.
Here’s why Zions is a Solid Pick
Revenue Strength: Zions’ net revenue has risen at a compounded annual growth rate (“CAGR”) of 1.4% in the last three years (2013–2015). Further, the bank has been witnessing consistent growth in loans.
Economic growth should spur loan demand, which is expected to support Zions’ top-line growth. The company’s projected sales growth (F1/F0) of 14.5% ensures continuation of the upward revenue trend.
Earnings per Share Growth: Zions has witnessed nearly 20.4% rise in earnings per share for the last 3-5 years. Further, this earnings momentum will likely continue in the near term, as reflected by the company’s projected EPS growth (F1/F0) of 18.4%, as compared with industry average of 8.4%.
Also, the company’s long-term (3–5 years) estimated EPS growth rate of 14.2% (versus the industry growth rate of 9.5%) promises rewards for investors over the long run.
Effective Cost Management: Zions has been successful in lowering its non-interest expenses through several initiatives. Further, management remains on track to keep expenses below $1.58 billion in 2016 (excluding severance and restructuring expenses). Also, it remains on track to exceed its annual gross pretax cost-savings target of $120 million in 2017.
Strong Leverage: Zions’ debt/equity ratio is 0.08 versus the industry average of 0.16, indicating a relatively lower debt burden. It also indicates the company’s financial stability even in adverse economic conditions.
Stock Looks Undervalued: With respect to Price-to-Book (P/B) and PEG ratios, Zions looks relatively undervalued. The company’s P/B ratio of 1.12 is below the industry average of 1.46. Also, the PEG ratio for the company is 1.42 as compared with industry average of 1.86.
Additionally, Zions has a Value Style Score of ‘B.’ The Value Style Score condenses all valuation metrics into one actionable score that helps investors steer clear of ‘value traps’ and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Scores of ‘A’ or ‘B,’ when combined with Zacks Rank #1 (Strong Buy) or #2, offer the best upside potential.
Other Banks Worth a Look
Some other favorably placed major banking stocks include The Bank of New York Mellon Corp. (BK - Free Report) , Bank of America Corp. (BAC - Free Report) and Comerica Inc. (CMA - Free Report) .
BNY Mellon witnessed an upward earnings estimate revision of 3.6% for the current year over the past 30 days. Also, its share price is up 14.1% year to date. It currently sports a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Bank of America carries a Zacks Rank #2 and has witnessed an upward earnings estimate revision of 9.8% for the current year for the past 30 days. Moreover, its share price is up 17.4% year to date.
Comerica also carries a Zacks Rank #2. It has witnessed an upward earnings estimate revision of 8.8% for the current year for the past 30 days and its share price has surged 41.6% year to date.
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