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Cullen/Frost Initiated at Neutral

Zacks Equity Research

On Oct 8, 2013, we initiated our coverage on commercial and consumer banking services provider, Cullen/Frost Bankers, Inc. (CFR) at Neutral based on its positive approach to market conditions and capital deployment efforts. Moreover, a healthy capital position is indicative of the company’s robust standing. However, the regulatory reforms, surging expenses and an unsettled global economy might act as deterrents for this Zacks Rank #2 (Buy) stock.

Why Neutral?

Cullen/Frost’s organic growth through its huge deposits base, capital adequacy and expansion through recent acquisitions prompted us to initiate with this stance.

With the growing level of deposits, the company has expanded organically. Though the level of deposits declined slightly in the first six months of 2013, it grew at a CAGR of 11.1% over the last five years (2008–2012). The growing deposit base should help the company generate loans and meet other general business purposes.

Cullen/Frost looks attractive for income-seeking investors due to its steady capital deployment activities. In Apr 2013, the company announced a 4% hike in its quarterly cash dividend on common stock. Moreover, the company has increased dividend every year since the financial crisis in 2008.

Recently, in an attempt to expand its footprint in Texas, Cullen/Frost signed a definitive merger agreement with WNB Bancshares, Inc. The merger will enable Cullen/Frost to reinforce its Texas franchise and enter the profitable Midland and Odessa markets.

However, with the growing level of non-interest expenses, the company is exposed to operational risks. Non-interest expenses surged 7.4% year over year in first-half 2013. Moreover, the recent regulatory norms have increased compliance costs. Continuation of this trend will remain a hindrance for bottom-line growth.

For Cullen/Frost, over the last 60 days, the Zacks Consensus Estimate for 2013 increased 0.3% to $3.78 per share, while it moved north by 2.5% to $4.07 per share for 2014.

Other Stocks to Consider

Besides Cullen/Frost, other stocks in the same sector that are currently performing well include Banc of California, Inc. (BANC) with a Zacks Rank #1 (Strong Buy), while Prosperity Bancshares Inc. (PB) and Community Trust Bancorp Inc. (CTBI) carry a Zacks Rank #2.

Read the Full Research Report on CFR
Read the Full Research Report on CTBI
Read the Full Research Report on BANC
Read the Full Research Report on PB

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