BancorpSouth Stays Neutral - Analyst Blog

On Jan 2, 2014 we reiterated our Neutral recommendation on regional bank BancorpSouth, Inc. (BXS), based on its ability to grow non-interest revenues amid a slowly recovering macroeconomic environment, its capital adequacy and stabilizing credit metrics. However, regulatory reforms, mounting expenses and an unsettled global economy might act as deterrents to this stock.

Why Neutral?

BancorpSouth's rising non-interest revenues are expected to partially offset net interest margin (NIM) compression in the near term and drive top-line growth. Additionally, the company appears attractive for yield-seeking investors due to its steady capital deployment activities. Buoyed by its strong capital position, BancorpSouth hiked its dividend in Aug 2013 by 400%.

Further, the company's third-quarter earnings of 26 cents per share were in line with the Zacks Consensus Estimate and beat the prior-year quarter figure by merely a penny. Additionally, over the last 60 days, the Zacks Consensus Estimate showed a mixed trend. For 2013, the Zacks Estimate was stable at 99 cents per share while for 2014, it rose 1.6% to $1.24 per share in the above-mentioned time period. BancorpSouth now has a Zacks Rank #3 (Hold).

However, with the rise in non-interest expenses, the company is being increasingly exposed to operational risks. Moreover, the recent regulatory norms have triggered a rise in compliance costs. If these factors prevail, the company's bottom-line growth will suffer. Further, the low interest rate environment might adversely affect the company's financials in the quarters ahead.

Other Stocks to Consider

Some better-placed regional banks worth a look include First Bancorp (FBNC), State Bank Financial Corporation (STBZ) and First NBC Bank Holding Company (NBCB). All these stocks carry a Zacks Rank #1 (Strong Buy).