During the last earnings season, the Finance sector was one of the best performers. Despite inflation-related issues and increasing chances of political uncertainty, we can retain some banking stocks in our portfolio based on their strong fundamentals and solid long-term growth opportunities.
Texas Capital Bancshares, Inc. (TCBI - Free Report) is one such stock. Top-line strength, easing margin pressure and a strong capital position are major driving factors. However, escalating expenses remain a concern.
Consistent loan and deposit growth, along with a diversified fee income base, aided the company to surge 39.2% compared with 15.3% growth recorded by the industry it belongs to.
Further, the company’s earnings estimates moved up 3.9% for the current year, in the last 60 days. It currently carries a Zacks Rank #3 (Hold).
Organic growth remained a key strength at Texas Capital, as reflected by its revenue growth story, primarily due to increased net interest income, driven by rise in average earning assets. Moreover, the company’s latest MCA business is anticipated to bolster earnings in 2017 and beyond. Further, a diversified fee income base will likely support revenue growth in the near term.
After years of facing a declining trend, the company reported a stabilized net interest margin (NIM) in 2016. Moreover, as a result of recent rate hikes since December 2016, the company reported an expanding NIM in the first half of 2017. Also, the company has been benefiting from better fee pricing and improved loan yields.
Growth remains the key story at Texas Capital and it continues to perform well on a variety of metrics. The company continues to experience growth in loans and deposits. Nonetheless, we believe that this growth has stemmed from a gain in market share from the company’s economizing competitors which struggled against Texas Capital’s relationship-based model.
However, the company continues to witness an elevation in expenses. Though its efforts to hire experienced bankers and expand the company’s presence are encouraging, the resultant expenses, which continue to rise at the rate higher than the revenues, negate the incremental effects of business expansion.
Stocks to Consider
Better-ranked stocks in the same space are FB Financial Corporation (FBK - Free Report) , LPL Financial Holdings Inc. (LPLA - Free Report) and Salisbury Bancorp, Inc. (SAL - Free Report) . All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FB Financial’s earnings estimates were revised 3.2% upward for 2017, in the past 60 days. Also, its share price has surged 67.1% in a year’s time.
LPL Financial’s earnings estimates for 2017 have been revised 4.1% upward, over the last 60 days. Further, in a year’s time, the company’s shares have jumped 55.2%.
Salisbury Bancorp witnessed a 2.4% upward earnings estimates revision for the current year, in a month’s time. Moreover, in the past year, its shares have gained 44.2%.
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