Over the past six months, Zions Bancorporation has been a great trade, beating the S&P 500 by 6.8%. Its stock price has climbed to $61.50, representing a healthy 14.4% increase. This performance may have investors wondering how to approach the situation.
Is there a buying opportunity in Zions Bancorporation, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Zions Bancorporation Not Exciting?
We’re glad investors have benefited from the price increase, but we're swiping left on Zions Bancorporation for now. Here are three reasons why ZION doesn't excite us and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Zions Bancorporation’s net interest income has grown at a 3.5% annualized rate over the last five years, much worse than the broader banking industry and in line with its total revenue.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) represents how much a bank earns in relation to its outstanding loans. It's one of the most important metrics to track because it shows how a bank's loans are performing and whether it has the ability to command higher premiums for its services.
Over the past two years, we can see that Zions Bancorporation’s net interest margin averaged a subpar 3.1%, meaning it must compensate for lower profitability through increased loan originations.
3. Growing TBVPS Reflects Strong Asset Base
For banks, tangible book value per share (TBVPS) is a crucial metric that measures the actual value of shareholders’ equity, stripping out goodwill and other intangible assets that may not be recoverable in a worst-case scenario.
Although Zions Bancorporation’s TBVPS increased by a meager 1.2% annually over the last five years, the good news is that its growth has recently accelerated as TBVPS grew at an incredible 20.1% annual clip over the past two years (from $28.30 to $40.79 per share).
Final Judgment
Zions Bancorporation isn’t a terrible business, but it doesn’t pass our bar. With its shares beating the market recently, the stock trades at 1.2× forward P/B (or $61.50 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're pretty confident there are superior stocks to buy right now. We’d recommend looking at the Amazon and PayPal of Latin America.
Stocks We Like More Than Zions Bancorporation
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