Prosperity Bancshares Shows Stability in Fundamentals - Analyst Blog

On Mar 28, 2014, we issued an updated research report on Prosperity Bancshares Inc. PB. Although the company has been growing organically as well as through acquisitions, higher operating expenses remain a drag.

Acquisitions have been a major part of Prosperity Bancshares' growth strategy. Over the years, the company has grown through acquiring banks and branches. Additionally, the company's revenues have been increasing driven by rise in loan and deposit balances. Further, given its strong capital position, we anticipate the company to continue with its dividend payouts going forward.

Moreover, Prosperity Bancshares reported better-than-expected fourth-quarter 2013 results, based on improvement in top line, partially offset by rise in expenses and provisions. Further, healthy growth in loans and deposits, along with improved profitability ratios, were tailwinds for the quarter.

Following the earnings release, analysts have remained bullish on Prosperity Bancshares as evident from the upward revisions in the Zacks Consensus Estimate for 2014 and 2015. Over the last 90 days, for 2014, the Zacks Consensus Estimate increased 3.5% to $4.14 per share and for 2015, it rose 2.8% to $4.41 per share. Hence, Prosperity Bancshares now has a Zacks Rank #2 (Buy).

On the flip side, continued pressure on net interest margin NIM and rising non-interest expenses remain major concerns for Prosperity Bancshares. Also, with the changes in the financial services industry and stringent regulations, the company's profitability will likely suffer due to increased costs and fee restrictions.

Stocks That Warrant a Look

Some better-ranked banking stocks include SVB Financial Group SIVB, Central Valley Community Bancorp CVCY and Central Pacific Financial Corp. CPF. All of these sport a Zacks Rank #1 (Strong Buy).