Underlying strength and earnings growth prospects make City Holding Company (CHCO - Free Report) a solid bet now. The factors that might drive the stock higher include an impressive organic growth, cost containment, improving credit quality and capital strength.
Also, the company has an impressive earnings surprise history. It surpassed the Zacks Consensus Estimate in each of the trailing four quarters with an average beat of 13.4%.
Further, it has been successful in gaining analysts’ confidence. Its current-year earnings estimates have revised 9.6% upward, over the past 60 days. As a result, the stock carries a Zacks Rank #2 (Buy).
Shares of City Holding have gained 25% over the past 12 months compared with the industry’s rally of 19.8%.
Why the Stock is Worth Buying
Revenue Strength: The company has been witnessing consistent improvement in revenues. Over the past five years (ended 2016), total revenues recorded a compound annual growth rate (CAGR) of 3.4%.
Its projected revenue growth rate is 7.5% for 2017 (compared with the industry average of 1.1%).
Prudent Expense Management: The Charleston, WV-based lender has successfully reduced its expenses at a CAGR of 2.5% over the last five years (ended 2016). Such cost management initiatives shall continue to support its bottom-line growth.
Steady Capital Deployment Activities: The company remains committed to enhancing its shareholders’ value. In March 2017, it raised its quarterly dividend by 2.3% to 44 cents per share.
Improving Credit Quality: City Holding’s credit quality has improved significantly over the years. In 2016, non-performing assets declined nearly 7% from the 2013 level. Also, the ratio of provision for loan losses to average loans came in at 0.15% compared with 0.27% in 2013.
Earnings per Share Growth: City Holding has recorded an earnings growth rate of 14.6% over the last three to five years compared with 13.8% for the industry it belongs to.
Further, this earnings momentum is likely to continue in the long term (three to five years) as reflected by the company’s projected earnings per share growth rate of 12.6% compared with 10.7% for the industry.
Superior Return on Equity: City Holding has a return on equity of 11.7% compared with the industry average of 8.06%. This indicates that the company is efficient in utilizing shareholder funds.
Strong Leverage: City Holding's debt/equity ratio is 0.03 compared with the industry average of 0.31. The relatively strong financial health of the company will help it perform better than its peers under an unstable business environment.
Stock Looks Undervalued: The stock currently has a Value Score of B. The Value Style Score condenses all valuation metrics into one actionable score which helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount. Our research shows that stocks with Style Score of A or B, when combined with Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.
Other Stocks to Consider
Some other stocks in the same space worth considering are The PNC Financial Services Group, Inc. (PNC - Free Report) , State Street Corporation (STT - Free Report) and Washington Federal, Inc. (WAFD - Free Report) . All these stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
PNC Financial’s Zacks Consensus Estimate for current-year earnings was revised 1.9% upward for 2017, in the past 60 days. Also, its share price has increased 36.9% in the past 12 months.
State Street’s current-year earnings estimates were revised 3.7% upward, over the past 60 days. Further, the company’s shares have jumped 30.1% in a year.
Washington Federal’s Zacks Consensus Estimate for current-year earnings was revised nearly 1% upward, over the last 60 days. Moreover, in the past year, its shares have gained 14.2%.
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