It seems to be the perfect time to invest in bank stocks. Supported by interest rate hikes and decent growth in loan balances, banks are expected to witness improvements in their top lines. Therefore, we bring one such stock — Prosperity Bancshares, Inc. PB — which is a solid pick based on its fundamental strength and improving prospects.
The company has been witnessing upward earnings estimate revisions of late, reflecting that analysts are optimistic regarding its earnings growth prospects. Over the past 60 days, the Zacks Consensus Estimate for PB’s current-year earnings has moved 1% upward. As a result, the company currently carries a Zacks Rank #2 (Buy).
Over the past year, shares of the company have lost 3.6% against the industry’s growth of 6.3%.
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Some factors mentioned below make the PB stock an attractive investment option now.
Earnings Strength: Prosperity Bancshares witnessed earnings per share growth of 8.7% in the last three to five years. The upward momentum is expected to continue in the near term. The company’s earnings are projected to grow 3% and 7.5% in 2022 and 2023, respectively.
Prosperity Bancshares has an impressive earnings surprise history. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters.
Revenue Growth: Prosperity Bancshares’ net revenues have seen a compound annual growth rate of 11.5% over the last five years (2017-2021). The rise was driven by solid loan balances and efforts to improve fee income. Acquisitions are other major contributors to Prosperity Bancshares’ top-line growth. Over the years, the company has significantly expanded its operations through the buyout of community banks and branches of other banks. Since 1998, it has completed more than 30 deals.
Driven by higher rates and loan growth, the company’s top line is expected to improve further in the quarters ahead. Its projected sales growth rates of 2.4% and 7.8% for 2022 and 2023, respectively, ensuring the continuation of the upward revenue trend.
Strong Leverage: Prosperity Bancshares has a debt/equity ratio of 0.00 compared with the industry average of 0.16. This shows that the company does not use debt to finance its operations. Also, it reflects that PB will be more financially stable than its peers in adverse economic conditions.
Sustainable Capital Deployments: Given a solid balance sheet and liquidity position, Prosperity Bancshares has been engaging in efficient capital deployment activities, enhancing shareholder value. The company has been annually increasing its dividend since 1999, with the latest hike announced in October 2021. In January 2022, it announced a share repurchase program (expiring on Jan 18, 2023) to buy back up to 4.6 million shares. As of Jun 30, 2022, 3.6 million shares remained under authorization.
Favorable Valuation: Prosperity Bancshares stock looks undervalued right now when compared with the broader industry. PB currently has a price/book ratio of 0.97, lower than the industry average of 1.11. Also, its PEG ratio of 1.19 compares favorably with the industry’s 1.77.
Other Stocks Worth Considering
A couple of other top-ranked stocks from the finance space are Associated Banc-Corp ASB and German American Bancorp, Inc. GABC.
Associated Banc-Corp’s earnings estimates have moved 7.9% upward over the past 60 days. Its share price has risen 8.2% in the past three months. ASB currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
German American Bancorp’s earnings estimates for 2022 have been revised 7.6% upward over the past 60 days. Its share price has increased 4.9% in the past three months. GABC also carries a Zacks Rank #2 at present.
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Prosperity Bancshares, Inc. (PB) : Free Stock Analysis Report
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