Prosperity Bancshares Reiterated at Neutral
On Dec 30, 2013, we reaffirmed our Neutral recommendation on Prosperity Bancshares Inc. ( PB). This was based on the company’s efficient organic and inorganic growth strategies. However, we remain concerned about a still low interest-rate environment (though expected to rise a little bit in the near term), stringent regulatory requirements and significant exposure to the real estate loan portfolio.
On Oct 23, Prosperity Bancshares reported third-quarter 2013 earnings per share of 91 cents, which beat the Zacks Consensus Estimate by a penny. Results benefited from rise in net interest income, partially offset by decreased non-interest income, higher operating expenses and increase in provision for credit losses.
The Zacks Consensus Estimate for 2013 remained unchanged at $3.58 per share over the last 60 days. However, for 2014, the Zacks Consensus Estimate advanced nearly 1% to $4.00 per share over the same time period. Prosperity Bancshares currently carries a Zacks Rank #4 that translates into a short-term rating of Sell.
Through its acquisitions, Prosperity Bancshares has been expanding globally and strengthening its position in the existing markets as well. We believe that with the ongoing consolidation in the banking sector, the company will continue to avail promising opportunities to meaningfully enhance shareholder value through inorganic growth.
Prosperity Bancshares’ organic growth has also been strong. Over the last three years, the company’s net revenue has been growing consistently, with the reported figure for nine months ending Sep 30 improving as well. Moreover, the company continues to witness a rise in loans. We anticipate Prosperity Bancshares to continue benefiting from the growing loan demand amid the economic recovery, but at a slower pace.
However, mounting non-interest expenses are a major challenge for Prosperity Bancshares. Additionally, given the stiff competition in the banking industry, we expect continuous deposit pricing pressure and a still low interest-rate environment to weigh on Prosperity Bancshares’ net interest margin, creating headwinds for the company’s revenues.
Other Stocks to Consider
Some better-ranked Southwest banks are ViewPoint Financial Group, Inc. ( VPFG), Southside Bancshares Inc. ( SBSI) and Texas Capital BancShares Inc. ( TCBI). While ViewPoint Financial holds a Zacks Rank #1 (Strong Buy), Southside Bancshares and Texas Capital BancShares have a Zacks Rank #2 (Buy).