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'Storm Is Brewing' for Banks

BancorpSouth
Shares of BancorpSouth (BXS - Get Report) of Tupelo, Miss., closed at $14.64 Monday, returning 33% year-to-date, following a 30% decline during 2011. BXS Chart BXS data by YCharts

The shares trade for 1.1 times tangible book value, according to Worldscope data provided by Thomson Reuters, and for 15 times the consensus 2013 EPS estimate of 95 cents. The consensus 2012 EPS estimate is 84 cents.

BancorpSouth is expected to report its second-quarter results on July 24, with the consensus estimate among analysts being a 20-cent profit, following EPS of 25 cents the first quarter, and 15 cents a year earlier.

Alexopoulos rates BancorpSouth "Underweight," with a price target of $13, and on Tuesday called the company one of his "top shorts," saying that "while credit challenges remain an overhang, earning the cost of capital is the next challenge" and that "the potential pipeline for problem assets remains sticky," as "special mention loans increased 18% or $22 million" during the first quarter.

The analyst added that "With +$1 billion CDs maturing in the coming quarters, the company has further room to lower its deposit costs, which now stand at 84 bps. However, in the absence of loan growth, net interest income is likely to remain flat."

Alexopoulos estimates that BancorpSouth will earn 81 cents a share this year, followed by 2013 EPS of 92 cents.

Despite the positives he noted, Alexopoulos sees BancorpSouth's shares as "overvalued," trading at "a 20% premium to peers," adding that "we don't see the required level of growth or profitability levels to render BXS a peer performer."

Interested in more on BancorpSouth? See TheStreet Ratings' report card for this stock.

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