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8 Reasons That Make City Holding (CHCO) Investment Worthy

Zacks Equity Research

Underlying strength and earnings growth prospects make City Holding Company CHCO a solid bet now. The factors that might drive the stock higher include an impressive organic growth, strategic efforts to grow presence, improving credit quality and capital strength.

Notably, the company has an impressive earnings surprise history. It surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 12.1%.

Further, it has been successful in gaining analysts’ confidence. Its current-year earnings estimates have been revised 2.3% upward over the past 60 days. As a result, the stock carries a Zacks Rank #2 (Buy).

Shares of City Holding have gained 2.1% over the past six months against the industry’s decline of 12.5%.

What Makes the Stock Attractive

Revenue Strength: The company has been witnessing consistent improvement in revenues. Over the past five years (ended 2016), total revenues recorded a compound annual growth rate (CAGR) of 3%.

Additionally, the upward trend is expected to continue in 2019 at a growth rate of 15%, with support from higher interests and City Holding’s efforts to grow fee income.

Solid Inorganic Growth Strategies: City Holding’s capital strength has been helping it to grow inorganically. As part of this strategy, the company announced the acquisition of Poage Bankshares and Farmers Deposit Bancorpin December 2018. The deal bolstered City Holding’s presence in the Huntington-Ashland and Lexington, Kentucky MSAs.

Steady Capital Deployment Activities: The company remains committed to enhancing shareholders’ value. In September 2018, it raised its quarterly dividend by 15.2% to 53 cents per share. Also, in February 2019, the board authorized a new share buyback program.

Impressive Balance Sheet Growth: City Holding’s loans and deposits have witnessed a CAGR of 7.9% and 8.5%, respectively, over a five-year period (ended 2018). Also, both loan and deposit balances are likely to get support from an improving economy. 

Improving Credit Quality: City Holding’s credit quality has improved significantly over the years. In 2018, non-performing assets declined nearly 19% from the 2014 level. Also, the ratio of net-charge offs to average loans came in at 0.02% compared with 0.18% in 2014.

Earnings per Share Growth: City Holding has recorded an earnings growth rate of 7.2% over the last three to five years. Further, this earnings momentum is likely to continue in the long term (three to five years) as reflected by the company’s projected earnings per share growth rate of 8%.

Superior Return on Equity: City Holding has a return on equity of 15.26% compared with the industry average of 10.12%. This indicates that the company is efficient in utilizing shareholder funds.

Strong Leverage: City Holding's debt/equity ratio is 0.07 compared with the industry average of 0.22. The relatively strong financial health of the company will help it perform better than its peers under an unstable business environment.

Other Stocks to Consider

Some other stocks in the same space worth considering are Fifth Third Bancorp FITB, BancorpSouth Bank BXS and Cadence Bancorp CADE. All these stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fifth Third’s Zacks Consensus Estimate for current-year earnings has been revised slightly upward for 2019 in the past 60 days. Also, its share price has increased 4.2% in the past three months.

BancorpSouth’s current-year earnings estimates have been revised marginally upward over the past 60 days. Further, the company’s shares have jumped 6.1% in the past three months.

Cadence’s Zacks Consensus Estimate for current-year earnings have remained stable over the past 60 days. Moreover, in the past three months, its shares have gained 10.1%.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

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