Zions (ZION) Loses Spot in S&P 500 as Concerns Over CRE Grows
Shares of Zions Bancorporation ZION lost 2.2% in the after-market trading on Friday after it came to light that the bank will lose its spot in the S&P 500 Index.
The S&P Dow Jones Indices announced that Super Micro Computer, Inc. SMCI and Deckers Outdoor Corporation DECK will join the S&P 500 Index, replacing ZION and Whirlpool Corporation WHR, effective Mar 18.
ZION and WHR will be joining the S&P Midcap 400 Index.
Super Micro is a maker of high-end servers that are used in artificial intelligence applications, whereas Deckers is a footwear manufacturer.
After an almost 240% rally in 2023, shares of SMCI have gained more than 200% so far this year as the ecstasy for disruptive technologies has fueled the demand for its servers. Also, the Deckers Outdoor stock has rallied more than 35% this year.
With the inclusion of SMCI and DECK in the S&P 500 Index, more importance will be given to the technology and consumer discretionary sectors, with less weight given to the industrial and financial sectors.
Notably, the S&P 500 Index is a market-cap-weighted index, which means that with bigger market capitalization, a company will have more influence on the index.
In this case, Super Micro’s market cap is approximately $51 billion, which is much above the combined market caps of Whirlpool and ZION.
The S&P Dow Jones Indices stated, “The changes ensure each index is more representative of its market capitalization range. All companies being added to the S&P 500 are more representative of the large-cap market space, while all companies being added to the S&P MidCap 400 are more representative of the mid-cap market space.”
Looking at ZION, the company, like most of its regional banking peers, has been suffering because of its sizeable exposure to commercial real estate (CRE) loans. As of Dec 31, 2023, ZION’s exposure to commercial loans was 76.1%.
And, since the demand for such loans is gradually waning amid a challenging operating backdrop, the asset quality of these loan categories will likely deteriorate in case of an economic slowdown. This is expected to hurt ZION’s profitability.
In 2023, shares of ZION lost 10.8%. The stock has declined 11.6% so far in 2024.
Amid the rapidly increasing interest rate environment, defaults on CRE loans climbed to 14-year highs last year. Weakness in the CRE lending industry has added to the woes of regional banks like ZION (as these have relatively more exposure to bad loans than their bigger rivals), which have already been struggling with unrealized losses.
It is also worth noting that following the regional bank failures, Zions’ long-term issuer rating has been lowered to Baa2 from Baa1 by Moody’s as high level of unrealized losses in available-for-sale and held-to-maturity securities portfolios, and a relatively low level of capitalization pose major headwinds.
Over the past six months, ZION shares have gained 7.3% compared with the industry’s 9.7% growth.
Image Source: Zacks Investment Research
Currently, ZION carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Whirlpool Corporation (WHR) : Free Stock Analysis Report
Deckers Outdoor Corporation (DECK) : Free Stock Analysis Report
Zions Bancorporation, N.A. (ZION) : Free Stock Analysis Report
Super Micro Computer, Inc. (SMCI) : Free Stock Analysis Report
