Supported by continued loan growth, inorganic expansion efforts and improving asset quality; Prosperity Bancshares’ (PB - Free Report) profitability is likely to improve further. Moreover, its steady capital deployment actions reflect strong balance sheet position.
However, pressure on net interest margin (NIM) due to lower yields will likely have an adverse impact on its revenue growth to some extent.
Moreover, the Zacks Consensus Estimate for the company’s current-year earnings has been revised marginally downward over the past 30 days, reflecting that analysts are not very optimistic regarding its earnings growth potential. Thus, the stock currently carries a Zacks Rank #3 (Hold).
Its price performance also does not seem very impressive. Shares of the company have lost 4% over the past six months compared with a 6.3% decline of the industry it belongs to.
Looking at its fundamentals, net revenues have witnessed a six-year (2013-2018) CAGR of 4.6%. Moreover, non-interest-bearing demand deposits saw a three-year CAGR of 4.5% (ended 2018). Given the rise in demand for loans and improving economy, the company’s top line is expected to improve further.
Over the past few years, the company has significantly expanded its operations through the buyout of community banks and branches of other banks. In June, the bank inked a deal to acquire LegacyTexas Financial, which will be accretive to earnings in 2020. Given the favorable consolidation backdrop in the banking sector, the company is expected to continue with its expansion strategy, going forward.
Further, it witnessed a decrease in net charge-off rates and allowance for credit losses to total loans ratio over the last few years. Thus, improving asset quality will likely continue to aid financials.
However, Prosperity Bancshares’ NIM has been persistently declining over the past several years from 3.80% in 2014 to 3.18% in 2018. Owing to its liability sensitive balance sheet, margins are expected to remain under pressure, thereby hurting top-line growth.
Moreover, expenses have witnessed a four-year CAGR of 1.3% (ended 2018) mainly due to higher salaries and benefit expenses. As the company continues to invest in franchises and grow through acquisitions, costs are expected to remain elevated.
Stocks to Consider
Some better-ranked stocks from the finance space are Victory Capital Holdings, Inc (VCTR - Free Report) , Virtus Investment Partners, Inc (VRTS - Free Report) and First Financial Bankshares, Inc (FFIN - Free Report) . All these stocks currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Over the past 60 days, Victory Capital witnessed an upward earnings estimate revision of 1.6% for 2019. Its shares have gained 42.1% so far this year.
Virtus Investment Partners has witnessed an upward earnings estimate revision of 2% for 2019 over the past 60 days. The company’s share price has improved 26.4% year to date.
Over the past 60 days, the Zacks Consensus Estimate for First Financial Bankshares’ current-year earnings has remained unchanged. Its shares have gained 13.1% so far this year.
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