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Stock Spotlight

Zions investors look beyond the headlines

Recent Price
$46
Dividend
$0.64
Yield
1.4%
P/E Ratio
17
Shares (millions)
209
Long-Term Debt as % of Capital
5%
52-Week Price Range
$48.33 - 36.57

Zions Bancorp’s ($46; ZION) September-quarter results prove that investors look at more than the raw profit numbers when evaluating a quarter. Zions delivered a rare profit shortfall, with earnings per share climbing 26% to $0.72 but missing the consensus by a penny.

Despite the narrow miss on earnings, the shares traded roughly flat on the report. Zions’ loan growth was stronger than many of its rivals, while energy exposure, a drag on recent loan growth, is stabilizing. Unlike other banks, Zions enjoys improving credit quality and lower charge-offs.

Postelection optimism has failed to materialize into robust loan growth. But Zion’s loan pipeline remains in good shape, and management views the economy as “generally strong.” The stock looks attractive in Quadrix®, with an Overall rank of 94 supported by five category scores exceeding 70. Zions is a Buy and a Long-Term Buy.

Digging into the quarter

Zion s, a regional bank in the West and Southwest, said profit growth was constrained by 2.5% higher noninterest expense, partly due to one-time costs, such as Hurricane Harvey. Revenue climbed 10% to $696 million, surpassing analysts’ expectations.

Total loans increased 4%, with growth driven by residential mortgages and commercial and industrial loans. Zions has managed to increase its loan portfolio despite steadily shrinking its exposure to energy loans in the past couple years. Risks that oil and gas loans would sour have weighed on the bank over the past year. But the criticized-loan ratio for oil and gas, which identifies problematic loans, fell to 30% from 42% in the year-ago quarter. Encouragingly, management now expects energy loans to hold steady or even start to grow again over the next 12 months.

Net interest margin expanded to 3.45% from 3.36% in the year-ago quarter. While the federal funds rate has climbed 0.75% in the past year, Zions’ deposit costs have increased just 0.12%. Yet Zions managed to boost its deposits base, primarily comprised of commercial clients, by 2.5% last quarter. Some of its largest customers are pressuring Zions to increase deposit rates, though the pressure is not yet widespread.

Zions holds loans worth $8.0 billion (18% of its portfolio) in areas affected by Hurricane Harvey. However, Zions downgraded the credit quality for less than $70 million in loans due to the storm and set aside $34 million in hurricane-related reserves.

Bright future

The stock is projected to grow per-share profits 14% in 2018, versus average growth of 13% for regional banks in the S&P 1500 Index. The stock trades at less than 15 times estimated 2018 earnings, below its industry average of 16.

The stock currently yields 1.0%, just half of its peer-group average of 2.0%. But it has already announced dividend hikes of $0.04 per share every quarter through the June 2018 quarter. Those moves will ultimately push the quarterly dividend to $0.24, implying a yield of 2.1%.

Obtain an annual report for Zions Bancorporation 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
Sep '17
$0.72
vs.
$0.57
10%
$47.70
-
$41.22
19 - 16
Jun '17
0.73
vs.
0.44
13%
44.85
-
38.43
20 - 17
Mar '17
0.61
vs.
0.38
9%
48.33
-
39.09
24 - 20
Dec '16
0.60
vs.
0.43
6%
44.15
-
30.07
24 - 17

 
Year (Dec)
Sales (Bil.)
Per-Share Earnings*
Per-Share Dividend
52-Week Price Range
P/E Ratio Range
2016
2.47
$1.99
$0.28
$44.15
-
$19.65
22 - 10
2015
2.21
1.20
0.22
33.03
-
23.72
28 - 20
2014
2.36
1.71
0.16
33.33
-
25.02
19 - 15
2013
2.28
1.58
0.13
31.40
-
21.56
20 - 14

 
Quadrix Scores†
Overall
Momentum
Value
Quality
Financial Strength
Earnings Estimates
Performance
94
82
77
74
95
70
56

* Earnings exclude special items.
NA Not Available.
† Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.

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Stock Spotlight

Zions investors look beyond the headlines

Wednesday, November 15, 2017

Zions Bancorp’s ($46; ZION) September-quarter results prove that investors look at more than the raw profit numbers when evaluating a quarter. Zions delivered a rare profit...

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