Zions Bancorp Balance Sheet Provides Flexibility, Credit Suisse Rates It Outperform

"We believe an improved revenue run-rate combined with expense discipline will drive PPNR (pre-provision net revenue) higher—which is not only important from the perspective of driving bottom line results, but is an important factor in capital return flexibility with the CCAR process," analyst Jill Shea wrote in a note.

"We have confidence in the achievability of our PPNR forecasts for ZION (if not beatable) given balance sheet growth, cash redeployment (incremental interest income pick-up) and demonstrated cost control," Shea continued.

The analyst said the management commentary suggests a more stable NIM from here, although his math suggests that there is near-term upward bias to the NIM from favorable balance sheet remix.

"Our analysis suggests a NIM boost in 3Q (helping the forward run-rate) given cash deployment and late 2Q'16 debt redemptions," Shea noted.

Meanwhile, Zions has set itself up for an improved CCAR result. The company has successfully reduced risk and improved capital and PPNR — resulting in improved stressed capital ratios year-over-year. ZION was approved for increased capital return in 2016 CCAR (about 60 percent vs. 15 percent in 2015).

"[G]iven de-risking and starting points of capital, a more aggressive 2017 CCAR 'ask' would be appropriate (barring unforeseen changes in the scenarios)," the analyst highlighted.

Shea projects about 70 percent total capital return for the 2017 CCAR process, which may prove to be too conservative.

At time of writing, shares of Zions Bancorp were up 1.29 percent at $29.06, while the analyst has a price target of $32.

Full ratings data available on Benzinga Pro.