With impressive revenue growth and growing deposit and loan balances, Cullen/Frost Bankers, Inc. (CFR - Free Report) appears a promising buying opportunity now. Further, the recent interest rate hike is anticipated to further stabilize the top line.
Though the U.S. banks have been battling with litigation issues, leading to elevated legal costs; a sharper focus on reducing needless expenses by reorganizing business and improving revenues is boosting the bottom line. This also paves a steadier growth path for the banks. Moreover, lesser regulations going forward will act as a tailwind for the banks.
Therefore, it’s a good idea to add banking stocks with robust fundamentals and long-term growth opportunities to your portfolio, at present.
Why Cullen/Frost is a Must Buy
Revenue Growth: Organic growth remains a key strength at Cullen/Frost, as reflected by its revenue growth story. Revenues witnessed a CAGR of 5.9%, over the last five years, (2012–2016), with the trend continuing in first-quarter 2017.
The company’s projected sales growth (F1/F0) of 15.8% (as against the nil industry average) indicates constant upward momentum in revenues.
Earnings Per Share Strength: Cullen/Frost witnessed earnings growth of 13.65% over the last three–five years. In addition, the company’s long-term (three–five years) estimated EPS growth rate of 9.5% promises rewards for investors, over the long run. Also, it recorded an average positive earnings surprise of 5.45% over the trailing four quarters.
Strong Leverage: Cullen/Frost’s debt/equity ratio is valued at 0.08, compared to the industry’s average of 0.69, displaying lower debt burden relative to the industry. It highlights the financial stability of the company even in an unstable economic environment.
Favorable Zacks Rank: Cullen/Frost currently carries a Zacks Rank #2 (Buy). This has been driven by the upward estimate revisions, for the last 60 days. For 2017, the Zacks Consensus Estimate moved up 3.5% to $5.28, while for 2017, it climbed 3.1% to $5.73.
Steady Capital Deployment: Cullen/Frost manages its capital levels efficiently. In Apr 2017, the company hiked its quarterly stock dividend by 5.6%. Notably, the company has raised dividends annually for 24 consecutive years. Additionally, in Oct 2016, its board of directors approved a $100-million common stock repurchase program. This underlines the company’s commitment to return value to shareholders.
Superior Return on Equity (ROE): Cullen/Frost’s ROE of 10.35%, as compared with the industry average of 8.69%, reflects the company’s commendable position over its peers.
Stock is Undervalued: Cullen/Frost has a P/E ratio and P/B ratio of 18.34x and 2.11x compared to the S&P 500 average of 18.94x and 3.18x, respectively. Based on these ratios, the stock seems undervalued.
Share Price Movement: Cullen/Frost’s shares gained 51.2% over the past one year compared with 35.6% growth recorded by the Zacks categorized Southwest Banks industry.
Stocks to Consider
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Comerica Incorporated (CMA - Free Report) has been witnessing upward estimate revisions for the last 60 days. Additionally, the stock moved up nearly 74.7% over the past one year. It currently has a Zacks Rank #2.
BancFirst Corporation (BANF - Free Report) has been witnessing upward estimate revisions for the last 60 days. Also, the company’s shares have risen nearly 65% over the last one year. It holds a Zacks Rank #2, at present.
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