Analysts' Choice: Bank On Zions To Outpace Peers

9/26/2016


  Recent Price
$30
  Dividend
$0.32
  Yield
1.1%
  P/E Ratio
18
  Shares (millions)
205
  Long-Term Debt As % Of Capital
8%
  52-Week Price Range
$31.28 - $19.65

Zions Bancorp ($30; ZION) traces its roots back to 1873, when it was founded by Brigham Young, the Mormon leader whose followers settled in Utah. It survived a run on the bank during the Great Depression and the 2008 financial meltdown that caused many of its peers to implode.

A series of acquisitions over the past 20 years has helped Zions push into 11 states in the West and Southwest. After completing these deals, Zions often keeps the local brand and management team in place so its branches retain the feel of community banks.

The stock has returned 11% including dividends in the past year, higher than any other stock in the S&P 500 regional-bank industry, which has averaged a flat return. That rally has pushed Zion's trailing P/E ratio to 18, above its 10-year average of 17 and the industry average of 14. But the strong share-price action also coincides with superior operating momentum, as Zions delivered 13% higher per-share profits over the past 12 months (versus its industry average of 10%) on 9% revenue growth (8%). Zions, earning an Overall rank of 97, is a Buy and a Long-Term Buy.

Zions ends risk exodus

Following the 2008 financial crisis, Zions clamped down on risk by keeping an unusually high proportion of its cash on hand and refusing to issue long-term loans at low interest rates. Management's conservative stance caused loan growth to lag many other regional banks.

In the past couple years, Zions has begun to open up its purse strings. Its loan portfolio grew 6% in the past year, though it still represents a conservative 83% of deposits, below the industry average of 89%. Management expects loan growth to keep accelerating through 2017.

Zions' portfolio includes commercial (52%), commercial real estate (27%), and consumer (22%) loans. Oil-and-gas loans currently account for about 6% of the bank's total portfolio. The credit quality of energy companies concerns investors, but many of Zions' loans are backed with collateral that assumed oil at $30 per barrel. The rebound in oil prices leaves these loans well reserved.

Noninterest expense is on pace to decline for a third straight year. Upgrades to an antiquated computer system and consolidation of loan-processing centers should help extend the string of expense declines into 2017.

Conclusion

Improving efficiency, higher loan growth, and the likely scenario of rising interest rates should boost the bank's profitability in the next couple years. Wall Street expects Zions' per-share profits to climb 20% in the 12 months ending June 2017, the strongest growth in its industry. Analyst estimates have risen over the last 90 days.

The stock's dividend yield of 1.1% looks paltry compared to the average of 2.6% for S&P 500 regional banks. However, Zions boosted its dividend 33% in July and 51% annually over the last three years, more than double the industry average. Management also plans to repurchase up to $180 million of stock, or 3% of outstanding shares, over the next 12 months.

An annual report for Zions Bancorporation is available at 1 S. Main, 15th Floor, Salt Lake City, UT 8413; (801) 844-7637; www.zionsbancorporation.com.

ZIONS BANCORP
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '16
0.48
vs.
0.41
36%
29.46
-
23.14
18 - 14
Mar '16
0.38
vs.
0.37
5%
26.91
-
19.65
17 - 12
Dec '15
0.43
vs.
0.33
1%
31.18
-
26.22
21 - 17
Sep '15
0.41
vs.
0.40
2%
32.42
-
26.42
21 - 17
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2015
2.21
1.62
0.22
33.03
-
23.72
20 - 15
2014
2.36
1.68
0.16
33.33
-
25.02
20 - 15
2013
2.28
1.58
0.13
31.40
-
21.56
20 - 14
2012
2.46
0.97
0.04
22.81
-
16.40
24 - 17
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
97
92
77
70
91
92
77

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.
   NA Not available.


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