On January 10, we initiated our coverage on regional bank,
Prosperity Bancshares Inc.
) at Neutral based on its strong growth prospects and
continuously falling expenses. However, significant exposure to
real estate loan portfolio and stringent regulatory landscape
remain the major causes of concern for this Zacks Rank #2 (Buy)
Why the Neutral Stance?
Prosperity's significant appetite for acquisitions, steady
top-line growth and continuously improving credit quality
prompted us to initiate with this stance. Further, the company
continues to witness a decline in non-interest expenses without
resorting to any cost-cutting initiative. Moreover, with a stable
capital position and regular dividend payments, Prosperity
remains an asset for yield-seeking investors.
However, as a result of the low interest rate environment
Prosperity is expected to continue experiencing pressure on its
net interest margin. Also, given its significant exposure to the
real estate markets, we believe that the company's financial
performance will likely be adversely impacted. In addition, the
company's profitability remains vulnerable to the stringent
regulatory landscape and absence of geographical diversification.
Further, in the third quarter of 2012, Prosperity marginally beat
the Zacks Consensus Estimate aided by top-line growth, partially
offset by higher operating expenses. The company is scheduled to
announce its fourth-quarter results on January 25.
The Zacks Consensus Estimate for the fourth quarter is pegged at
84 cents per share. Earnings ESP (Expected Surprise Prediction),
the percentage difference between the Most Accurate Estimate and
the Zacks Consensus Estimate, for Prosperity is nil. This implies
that the company will report earnings in line with the Zacks
Consensus Estimate in the fourth quarter.
Other Stocks to Consider
Besides Prosperity, other stocks in the financial industry that
are currently performing well include
Cardinal Financial Corp.
). These two companies carry a Zacks Rank #1 (Strong Buy).
CARDINAL FINL (CFNL): Free Stock Analysis
IBERIABANK CORP (IBKC): Free Stock Analysis
PROSPERITY BCSH (PB): Free Stock Analysis
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