Given rising interest rates and decent demand for loans, Zions Bancorporation ZION seems like a solid bet. In addition, the company’s effective capital deployment activities enhance shareholder value.
Analysts seem optimistic about the company’s earnings potential. The Zacks consensus estimate for 2022 and 2023 revenue has been revised up 2.6% and 5.9%, respectively, over the past 30 days. Zions currently sports a Zacks rank #1 (strong buy).
In terms of price action, the company’s shares have risen almost 1% over the past year, compared to an 8.4% drop recorded by the industry.
Image source: Zacks Investment Research
Here’s why Zions is a must buy now
Earnings growth: Zions has seen earnings growth of 15.4% over the past three to five years, above the industry average of 10%. While the company’s earnings are expected to decline by 11.9% for 2022, they are expected to grow by 17.4% for 2023.
Additionally, the company has an impressive track record of earnings surprises. Zions earnings have exceeded the Zacks consensus estimate in three of the past four quarters, with the average surprise being 2.95%.
Revenue Strength: Zions revenue has grown at a compound annual growth rate (CAGR) of 2.8% over the past five years (2017-2021), driven by a robust loan balance, with net loans and leases (net of unearned income and fees) registering a CAGR of 3.2% over the same period. The bank’s high balance of non-interest bearing deposits also contributes to its finances. With favorable macroeconomic developments, rising interest rates and continued demand for loans, the bank is expected to experience a further increase in income.
Zions revenue is expected to grow 6.9% for 2022 and 12% next year.
Manageable debt level: As of June 30, 2022, the company had total borrowed funds of $1.69 billion and the cash and cash equivalents balance was $559 million. Its ratio multiplied by interest earned of 43.1 at the end of the second quarter of 2022 reflects a year-over-year increase.
The company also maintains investment grade ratings of BBB+ from S&P Global and Fitch Ratings and Baa1 from Moody’s Investor Service. All three rating agencies assigned a stable outlook to the company’s ratings. This allows the company easy access to the debt market. So, given the strength of earnings, Zions is likely to be able to continue to service its debts, even if the economic situation deteriorates.
Regular deployment of capital: In July 2022, the company announced an 8% increase in the quarterly dividend to 41 cents per share. The bank has a dividend yield of 2.85% and a five-year annualized dividend growth of 18.42%. Currently, ZION’s payout ratio is 28% of earnings.
The company has also set up a share buyback program. For the third quarter of 2022, Zions has authorized the redemption up to $50 million. Given its strong capital position and lower dividend payout ratio than its peers, the company is expected to maintain its capital deployments.
The stock looks undervalued: In terms of its current PEG and price-to-earnings (P/E) (F1) ratios, Zions looks undervalued. The company’s PEG ratio of 0.57 is below the industry average of 1.83. Additionally, the company’s P/E ratio is 9.35 compared to the industry average of 10.06.
Additionally, ZION has a Value rating of B. The Value Style Score condenses all valuation metrics into one actionable score, helping investors avoid “value traps” and identify stocks that are truly trading at a discount.
Other actions worth a look
A few other top-ranked stocks in the banking industry are Bancorp East-West EWBC and Associated Bank-Corp ASB. Right now, EWBC sports a Zacks rank of #1 (strong buy), while ASB has a Zacks rank of 2. You can see the full list of today’s Zacks #1 Rank stocks here.
Over the past year, shares of East West Bancorp have gained 1.2%, while those of Associated Banc-Corp have risen 1.3%.
Over the past 30 days, East West Bancorp’s Zacks consensus estimate for current-year earnings has been revised up 7.9%, while Associated Banc-Corp’s has risen. increased by 12.1% towards the north.
Zacks’ Top Picks for Leveraging Electric Vehicles
A lot of money has already been made in the electric vehicle (EV) industry. But the electric vehicle revolution has not yet reached full steam. There’s a lot of money to be made as the next push for future technologies gathers pace. Zacks special report reveals 5 top investorsSee 5 EV stocks with extreme upside potential >>
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.