Zions BancorporationZION’s strong loan and deposit balance and business simplification efforts are expected to continue to support its finances. In addition, the bank’s capital deployment activities are impressive and will increase shareholder value. However, low interest rates and rising spending remain major short-term problems.
Zions Bancorporation’s organic growth looks impressive. The company’s revenue has grown at a compound annual growth rate (CAGR) of 4% over the past five years (2016-2020), largely due to continued loan growth. The bank’s non-interest bearing deposits also continue to boost its finances. Given the company’s initiatives to efficiently deploy the capital generated by these deposits, along with a decent increase in loan demand, its revenue is expected to improve further.
The deployment of the company’s capital is also commendable. While the bank is expected to continue paying quarterly dividends at the same rate of 34 cents per share, it has announced a share buyback plan for the first quarter of 2021 to repurchase up to $ 50 million in shares. Given Zions Bancorporation’s strong balance sheet and lower dividend payout ratio, its capital deployment activities appear sustainable.
In particular, analysts seem to have an optimistic position for the title. Zacks’ consensus estimate for 2021 and 2022 earnings has risen 0.7% in the past 30 days.
However, with interest rates close to zero, pressure on the Net Interest Margin (NIM) is a major concern for Zions Bancorporation. The company saw the NIM drop in 2020 to 3.15%, from 3.54% in 2019 and 3.61% in 2018. As the Federal Reserve has not reported any interest rate changes any time soon, NIM could remain under pressure despite increased demand for loans.
In addition, the growing expenses of the business due to franchise investments and technology upgrades are a major concern. Total non-interest charges registered a CAGR of 1.8% over the past five years (end of 2020).
Shares of this company Zacks Rank # 3 (Hold) have risen 73.2% in the past six months, underperforming industry growth by 77.5%.
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