Zions Bancorporation trades at $65.89 and has moved in lockstep with the market. Its shares have returned 13.3% over the last six months while the S&P 500 has gained 11.8%.
Is there a buying opportunity in Zions Bancorporation, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Zions Bancorporation Not Exciting?
We’re cautious about Zions Bancorporation. Here are three reasons you should be careful with ZION, plus one stock we’d rather own.
1. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
Zions Bancorporation’s net interest income has grown at a 4.1% annualized rate over the last five years, much worse than the broader banking industry and in line with its total revenue. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
2. EPS Growth Has Stalled
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Zions Bancorporation’s flat EPS over the last five years was below its 4.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Growing TBVPS Reflects Strong Asset Base
We consider tangible book value per share (TBVPS) the most important metric to track for banks. TBVPS represents the real, liquid net worth per share of a bank, excluding intangible assets that have debatable value upon liquidation.
Although Zions Bancorporation’s TBVPS increased by a meager 2% annually over the last five years, the good news is that its growth has recently accelerated as TBVPS grew at an incredible 20.8% annual clip over the past two years (from $30.67 to $44.74 per share).
Final Judgment
Zions Bancorporation isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 1.2× forward P/B (or $65.89 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re fairly confident there are better investments elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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