Credit Suisse Bullish On Zions, Raises Earnings Estimates And Price Target

Credit Suisse’s Jill Shea believes that with expense control evident, Zions Bancorp ZION is on track to delivering improved profitability.

Shea reiterated an Outperform rating on the company, while raising the price target from $32 to $36.

Expense Control

However, the analyst mentioned that while “credit costs are difficult to predict, the energy portfolio continues to decline; energy reserves bolstered, and underlying credit statistics are benign; it's our view that the ramp in Street 2018 provision expense looks directionally too high.”

On the other hand, Shea expects expenses to remain steady going forward, given that performance has been tracking better than Zions Bancorp’s stated goals.

Profitability

“The 1H'16 run-rate is tracking $1.55 billion which we think ZION can hold steady for the FY16 run-rate. Given that rates have not provided earnings support, we think greater urgency has been placed on controlling costs,” the analyst stated.

Shea expects an 8.3 percent improvement in ROTCE by Q4:17, with the ROTCE reaching 9.1 percent by Q4 2018, without benefiting from higher rates.

The analyst also believes there is further room for upside in profitability and earnings if the Fed hikes rates and there is better cost control, and/or a decrease in credit costs.

The EPS estimates for 2016, 2017 and 2018 have been raised to above consensus levels, due to a lower expense run-rate and lower provision expenses.

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