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In a report published Tuesday, Deutsche Bank analyst Dave Rochester reiterated a Hold rating on shares of
Zions Bancorporation with a price target boosted to $31 from a previous $29 to reflect lower expenses as part of the company's
announced corporate restructuring and operating leverage initiative.
"We expect the shares to react positively to Zions' new expense reduction plan, as we expect upside to consensus earnings per share with conservative expense estimates higher than management's guidance for fiscal 2016/2017," Rochester wrote.
The analyst continued that some degree of execution risk and revenue headwinds exist to the growth elements of the efficiency plan. As such, the company is not expected to achieve its long-term goal of a 10 percent ROTCE (return on average tangible common shareholders' equity) in fiscal 2017. Nevertheless, the steps the company is taking to move its efficiency ratio to a level more in line with its $50 billion plus asset peers is "encouraging" and "better than we had expected originally."
Rochester raised his fiscal 2015, 2016 and 2017 earnings per share estimate by $0.05, $0.07 and $0.10, respectively to $1.45, $2.07 and $2.55. In addition to the revised expense plan, the analyst's new estimates also reflect the positives of high-cost sub debt and preferred dividend reduction, the NIM (net interest margin) benefits from the cash investment in HQLA (high quality liquid assets) of $6 billion over three years and loan growth over time.
Bottom line, Rochester sees upside in shares of Zion in a rising rate environment, he still sees greater risk-adjusted returns in other stocks in his coverage at the present time.
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Posted In: Analyst ColorAnalyst RatingsDave RochesterDeutsche BankEfficiency RatioExpense Reduction PlanHQLAROTCEZions Bankcorp
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