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Cullen/Frost (CFR) Up 4.1% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Cullen/Frost Bankers, Inc. (CFR - Free Report) . Shares have added about 4.1% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is CFR due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Cullen/Frost Reported Solid Q1 Earnings & Revenues

Cullen/Frost delivered a positive surprise of 8.1% in first-quarter 2018. Earnings per share of $1.61 handily surpassed the Zacks Consensus Estimate of $1.49. Further, the reported figure compares favorably with $1.28 in the prior-year quarter.

Top-line strength and lower provisions were reflected in the quarter. Further, increase in loans and deposits, and a strong balance sheet position were the positives. However, elevated expenses and contraction of margin remained major drags.

The company reported net income available to common shareholders of $104.5 million, up 26% from $82.9 million recorded in the prior-year quarter.

Revenue Growth Offsets Escalated Expenses  

Total revenues came in at $321.2 million in the quarter, up 17.7% from the prior-year quarter. However, revenues lagged the Zacks Consensus Estimate of $328.3 million.

Net interest income on a taxable-equivalent basis climbed slightly year over year to $252.5 million. The upswing was primarily attributable to the rise in earning assets. However, net interest margin contracted 12 basis points (bps) year over year to 3.52%.

Non-interest income totaled $91.4 million, up 9.3% from the year-ago quarter. The increase was mainly due to higher trust and investment management fees, other income and Insurance commissions and fees, partially offset by lower interchange and debit card transaction fees.

Non-interest expenses of $196.6 million jumped 4.6% year over year. Increase in almost all the cost components led to elevated expenses in the reported quarter.

Strong Balance Sheet

As of Mar 31, 2018, total loans were $13.4 billion, up 9.7% year over year. Total deposits amounted to $26.7 billion, up 2.1% from the prior-year quarter.

Credit Quality: A Mixed Bag

As of Mar 31, 2018, provision for loan losses decreased 12.7% on a year-over-year basis to $6.9 million. Allowance for loan losses, as a percentage of total loans, was 1.12%, down 14 bps from the prior-year quarter.

However, non-performing assets were $136.6 million, up 15.5% from the year-ago quarter. Also, net charge-offs, annualized as a percentage of average loans expanded 11 bps year over year to 0.38%.

Profitability and Capital Ratios

As of Mar 31, 2018, Tier 1 risk-based capital ratio was 13.42% compared with 13.50% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 15.36%, down from 15.62% as of Mar 31, 2017. Leverage ratio inched up to 8.62% from 8.34% as of Mar 31, 2017.

Return on average assets and return on average common equity were 1.36% and 13.62%, respectively, compared with 1.12% and 11.55% witnessed in the prior-year quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been eight revisions higher for the current quarter In the past month, the consensus estimate has shifted by 5.1% due to these changes.

VGM Scores

At this time, CFR has a nice Growth Score of B, however its Momentum is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise CFR has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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