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Zions (ZION) Stock Rallies 22.2% YTD: Is More Upside Left?

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Shares of Zions Bancorporation (ZION - Free Report) have rallied 22.2% year to date, outperforming the industry’s growth of 17.8%. Increasing net interest income, deposits and loans, and a strong balance sheet position drove the company. This, in turn, boosted investor sentiments.

Further, the current rally marks a reversal in trend for Zions following a dismal 2018 performance. Last year, the company’s shares had lost 19.8%, mainly due to several concerns including the U.S.-China trade war, uncertainty related to the Brexit, changing yield curve and expectations of global economic slowdown.

Additionally, this Zacks Rank #3 (Hold) stock has been witnessing upward earnings estimate revisions. Over the past 60 days, the Zacks Consensus Estimate has moved 1.9% and 1.1% north for 2019 and 2020, respectively.

While past performance does not guarantee a similar trend in the future, we believe the following factors are adequate to support steady price appreciation for Zions:

Revenue Growth: Revenue growth is a key strength for Zions. The top line witnessed a five-year CAGR of 6.6% (2014-2018), driven by solid loan and deposit balances. Furthermore, net loans and leases witnessed a CAGR of 3.4% over the last six years (2013-2018).  Also, the company’s non-interest-bearing deposits, which constituted 42.3% of total deposits as of Sep 30, 2019, support its financials.

Moreover, Zions’ efforts to efficiently deploy the capital generated from deposits and rise in loan demand will aid revenue growth in the near term. The Zacks Consensus Estimate for the company’s revenues for 2019 suggests growth of 2% from the year-ago reported figure.

Earnings Strength: Zions’ earnings have witnessed growth of 29% in the past three-five years compared with industry average of 16.1%. The momentum is anticipated to continue in the near term as well. The company’s projected earnings growth rate is 5.2% for 2019 and 3% for 2020.

Also, the company’s long-term (five years) expected earnings growth rate of 7% promises rewards for shareholders.

Impressive Capital Deployment: Zions is actively involved in capital deployment activities. Also, the company is exempted from taking part in the Federal Reserve's annual stress test, which provides it the flexibility to announce capital plans.

As such, it authorized share buyback worth up to $275 million for the fourth quarter of 2019. In July, the bank raised its quarterly dividend, marking the fourth hike over the past year.

Driven by strong liquidity position and consistently improving earnings, the company’s capital deployment activities look sustainable.

Stock Seems Undervalued: The company looks undervalued, with respect to its price/earnings (P/E) (F1) and price/book (P/B) ratios. It has a P/E (F1) ratio of 11.59, which is below the industry average of 12.89. Also, its P/B ratio of 1.22 is lower than the industry average of 1.36.

Additionally, the stock has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount.

Key Picks

Luther Burbank Corporation’s (LBC - Free Report) earnings estimates for 2019 have been unchanged in the past 30 days. Moreover, the Zacks Rank #1 (Strong Buy) stock has gained 28.2% in the year-to-date period. You can see the complete list of today’s Zacks #1 Rank stocks here.

Metropolitan Bank Holding Corp.’s (MCB - Free Report) earnings estimates for the ongoing fiscal year have been unchanged over the past 30 days. Additionally, the stock has gained 46.1% so far this year. It currently flaunts a Zacks Rank #1.

FS Bancorp, Inc. (FSBW - Free Report) has witnessed upward earnings estimate revision of 3.1% for 2019 in the past 30 days. Moreover, the Zacks #1 Ranked stock has risen 39.4% year to date.

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