Morgan Stanley Downgrades BancorpSouth on Weak Fundamental Profile

In a report published Monday, Morgan Stanley analyst Ken Zerbe downgraded

from Equal-weight to Underweight. Zerbe noted the 75% gain in BancorpSouth stock in 2013 and sees an unattractive risk-reward based on the company's weak fundamental profile. The analyst commented that the company outperformed peers by 32 percentage points in 2013 and is trading 30% above the peer group median. This data suggests that company optimism is already priced in the share value. Morgan Stanley reported, “We expect slower net interest income growth than peers (at 1.2% versus peers at 2.9%), driven by weaker loan growth of 4.2% (below peers at 6.0%). Its ROTCE of 9.1% is roughly 200 bps below peers due to a bloated expense base. We think the company is doing a great job at cutting excess costs (we expect its efficiency ratio to decline from 76% in 2013 to 70% in 2015), and NIM should be relatively stable (down just 5 bps by 4Q14), but this does not justify the stock's premium valuation.” BancorpSouth management publicly announced that the company is looking to participate in M&A. Zerbe noted that an accretive acquisition could improve the company's EPS, but “deals that could come close to justifying the stock price are scarce.” Shares of BancorpSouth closed at $24.87 on Friday have traded as low as $23.68 today, down 5.025%.