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BancorpSouth (BXS) Displays Fee Income Growth: Time to Hold?

Performance of banks in third-quarter 2018 was quite impressive. Favorable economic data, the Fed’s recent rate hikes and tax-reform benefits boosted investors’ confidence in banking stocks. Therefore, some of these stocks can be profitable additions to your portfolio, supported by robust fundamentals and encouraging long-term prospects.

BancorpSouth Bank BXS is one such stock. Rising fee income, improving credit quality, rising margins and strategic investments through mergers and acquisitions (M&A) are the major driving factors. However, significant exposure to consumer mortgage and commercial real estate loans, along with rising expenses are on the downside.

Diversified fee-income base, strategic acquisitions and steady capital-deployment activities aided the company to rally 6.5% over the past two years compared with 5.2% growth recorded by the industry.

The company’s earnings estimates have been revised 1.4% upward for the current year, in the last 60 days. It currently carries a Zacks Rank #3 (Hold).

BancorpSouth has been undertaking measures to improve its non-interest income. In the first three quarters of 2018, non-interest revenues increased on higher credit and debit card income, along with rise in deposit service charges, after recording a 2.5% decline in 2017 due to lower mortgage banking income. Nevertheless, it recorded a three-year (2014-2016) compounded annual growth rate (CAGR) of 1.8%.

We remain encouraged by BancorpSouth’s ability to generate positive cash flows and enhance shareholders’ value through regular dividend payments and share repurchases.

Driven by its solid liquidity position, BancorpSouth has been making strategic investments through M&As. Since the past few years, the company has maintained an acquisition spree, fortifying its footprint in various areas. These transactions are anticipated to continue to be accretive to earnings, over the long run.

Though BancorpSouth’s non-interest expenses declined at a three-year CAGR of 2.7% during 2015-2017, the figure flared up in the first nine months of 2018 due to the impact of merger expenses and higher personnel expenses. Therefore, inorganic growth and digitization efforts may lead to elevated expenses, going ahead.

Stocks to Consider

Greenhill & Co., Inc. GHL has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked stock has rallied more than 26% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

E*TRADE ETFC has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 4.6% year to date. Currently, it sports a Zacks Rank of 1.

Great Southern Bancorp, Inc. GSBC has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 4.5% year to date. It currently carries a Zacks Rank #2.

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