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Cullen/Frost Swings Up on Organic Growth: Time to Hold?

On Jun 3, 2016, we issued an updated research report on Cullen/Frost Bankers, Inc.CFR . This commercial and consumer banking services provider has recorded a year-to-date return of 15.5%.

We believe this growth story has been aided by the company's consistent organic growth among several other positives including a strong capital position, steady capital deployment activities and strategic acquisitions.

Organic growth remains a key strength at Cullen/Frost, as reflected in its revenues. Revenues grew at a CAGR of 5.1% over the last five years (2011-2015), with the trend continuing in the first quarter of 2016 as well. We believe the company is well positioned to maintain this trend, going forward.

Further, the company's deposit base recorded a 5-year CAGR of 9.8% in 2015, while loans grew at a CAGR of 9.5% over the same time frame. A similar trend was witnessed during the first quarter of 2016. Strong deposit balances are likely to help the company generate higher loans and meet other general business purposes. Notably, consistent growth in loans is expected, despite uncertain markets due to volatile energy prices. Additionally, backed by its strong liquidity position, Cullen/Frost has been consistently paying dividends.

Cullen/Frost continues to expand through acquisitions. In 2014, in an attempt to extend its footprint in Texas, the company merged with WNB Bancshares, Inc. This marks the first bank acquisition for Cullen/Frost since 2006 when it bought Fort Worth-based Summit Bancshares Inc. The merger enabled Cullen/Frost to reinforce its Texas franchise and enter the profitable Midland and Odessa markets.

However, with the growing level of non-interest expenses, the company is exposed to operational risks. Non-interest expenses recorded a CAGR of 5.6% over the last five years (2011-2015), and continued to scale higher in the first quarter of 2016. Continuation of this trend will remain a hindrance for bottom-line growth.

Over the last 30 days, the Zacks Consensus Estimate for this stock decreased slightly to $4.39 for 2016, but remained stable at $4.77 for 2017. Cullen/Frost currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some-better ranked stocks in the finance sector include Southside Bancshares Inc. SBSI sporting a Zacks Rank #1 (Strong Buy), while Banc of California, Inc. BANC and Enterprise Financial Services Corp. EFSC has a Zacks Rank #2 (Buy).

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ENTERPRISE FINL (EFSC): Free Stock Analysis Report

CULLEN FROST BK (CFR): Free Stock Analysis Report

SOUTHSIDE BANCS (SBSI): Free Stock Analysis Report

BANC OF CA INC (BANC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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