On Sep 30, we issued an updated research report on Cullen/Frost Bankers, Inc. CFR. The company has been witnessing steady revenue growth for the past several years and has a strong liquidity position. Also, its involvement in steady capital deployment activities seems encouraging. However, significant exposure to real estate loan portfolios and a continued rise in operating expenses make us apprehensive.
The Zacks Consensus Estimate for its current-year earnings has been revised slightly downward over the past 30 days.
Shares of this Zacks Rank #3 (Hold) company have gained 15.6% over the past six months compared with 12.8% growth recorded by the industry.
Cullen/Frost’s organic growth looks impressive. Revenues witnessed a CAGR of 6.4% over the last five years (2015-2019). Moreover, the low-cost funding source — non-interest bearing deposits — representing more than 40% of total deposits, is anticipated to aid net interest income and margin.
The bank has a decent debt position. As of Jun 30, 2020, the company had debt of $1.82 billion, increasing from the past few quarters. Its debt-capital ratio, currently 0.05, has remained stable over the same period. Also, time-interest-earned ratio has increased slightly in the past few quarters and is currently at 18.2X. Thus, we believe Cullen/Frost carries low credit risk.
Also, the company’s capital deployment activities seem sustainable given its decent liquidity position. In April 2019, it hiked quarterly stock dividend by 6%. Notably, it has increased dividends annually for 26 consecutive years. Also, in July 2019, its board of directors approved a $100-million common stock repurchase program. This reflects the company’s commitment to return value to its shareholders, backed by a strong capital position.
However, Cullen/Frost’s non-interest expenses have been mounting over the years. The same witnessed a CAGR of 3.3% over the last five years (2015-2019), primarily due to rise in almost all cost components.The company expects costs for 2020 to rise 6% year over year.
Also, Cullen/Frost’s significant exposure to the real estate sector is a concern. As of Jun 30, 2020, the company’s exposure to these loan portfolios was about 44% of the total loans. Though the housing sector has been showing signs of improvement, any further deterioration in real estate prices will act as a headwind.
Stocks to Consider
BancorpSouth Bank BXS has witnessed upward earnings estimate revisions for 2020 over the past 60 days. This Zacks #2 Ranked (Buy) stock has gained 1.5% over the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
City Holding Company’s CHCO ongoing-year earnings estimates have moved up in the past 60 days. The company’s shares have declined 12.2% over the past six months. At present, it carries a Zacks Rank of 2.
First Financial Corporation Indiana THFF current-year earnings estimates have moved north in 60 days’ time. The stock has lost 4.1% over the past six months. It currently sports a Zacks Rank #1.
Zacks’ Single Best Pick to Double
From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100% or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.
With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.
The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.