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Prosperity Bancshares or Texas Capital: Which Is Better?

Zacks Equity Research

Prosperity Bancshares, Inc. PB and Texas Capital Bancshares, Inc. TCBI are two regional bank stocks with market capitalization of $5.21 billion and $4.37 billion, respectively. Both are part of the Banks-Southwest industry, which has a Zacks Industry Rank #61 (top 23%).

The fundamentals of these two stocks make them well positioned to benefit from the industry’s affluence that is expected in the near term due to lesser regulations and lower taxes under the Trump administration.

Notably, in 2016, Prosperity Bancshares’ shares gained around 50%, while Texas Capital’s shares increased 58.6%. Both outperformed the Zacks categorized Banks-Southwest industry’s gain of 42.7% over the same time frame.



Although both banks have their roots in the same industry and similar business operations, it is important and more meaningful to dig deeper into their financials, before deciding which one is a better investment option.

Prosperity Bancshares

Prosperity Bancshares has a trailing 12-month Return on Equity (ROE) of 7.52%, compared with the industry average of 11.25%. This suggests that it is less efficient in reinvesting its earnings.

Nonetheless, Prosperity Bancshares’ debt/equity ratio, which stands at 0.00, indicates that the company uses no debt to finance its operations. On the other hand, the industry’s debt/equity ratio stands at 0.63. This reflects that the company is financially stable even in adverse economic conditions.

Also, Prosperity Bancshares’ stock looks undervalued with respect to its price-to-earnings (P/E) and price-to-book (P/B) ratios. It has a P/E ratio of 18.39, compared with the industry average of 18.57. Moreover, the company’s P/B ratio of 1.43 is below the industry average of 1.61.

Additionally, the bank’s current-year earnings are projected to grow 3.6%, while sales are expected to increase 0.9%.

Also, analysts seem optimistic about the stock’s earnings performance. For the current year, in the last 30 days, the stock witnessed five upward revisions (against one downward revision). As a result, the Zacks Consensus Estimate for 2017 rose nearly 1% to $4.08.

Prosperity Bancshares currently carries a Zacks Rank #2 (Buy). However, it has a Momentum Score of ‘C’. Our research shows that stocks with a Momentum Score of ‘A’ or ‘B’ when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.

Texas Capital Bancshares

Texas Capital has a trailing 12-month ROE of 8.28%, compared with the industry average of 11.25%. This suggests that it is less efficient in reinvesting its earnings.

Also, Texas Capital stock looks overvalued with respect to its P/E and P/B ratios. It has a P/E ratio of 21.75, compared with the industry average of 18.57. Also, the company’s P/B of 2.57 is above the industry average of 1.61.

Further, Texas Capital’s debt/equity ratio stands at 1.29, compared with the industry average of 0.63, indicating a relatively higher debt burden.

Nevertheless, the bank’s earnings for the current year are projected to grow 30.5%, while sales growth is estimated to be 18.3%.

Moreover, analysts seem optimistic about the stock’s earnings prospects. For the current year, in the last 30 days, the stock has witnessed eight upward revisions (against one downward revision). The Zacks Consensus Estimate for the year has therefore increased 4.4% to $4.06.

Texas Capital has a Momentum Score of ‘A’ and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Our Take

While Prosperity Bancshares looks better positioned in terms of its debt/equity ratio, Texas Capital’s better earnings and sales growth potential, a Zacks Rank #1 and Momentum Score of ‘A,’ makes it a better pick.

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Texas Capital Bancshares, Inc. (TCBI): Free Stock Analysis Report
 
Prosperity Bancshares, Inc. (PB): Free Stock Analysis Report
 
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