Zions: Financial Winner

NEW YORK ( TheStreet) -- Zions Bancorporation ( ZION) was the winner among the largest U.S. financial names on Friday, with shares rising over 2% to close at $19.70.

The broad indexes all saw slight gains, after the initial reading on the University of Michigan consumer sentiment index for August came in at 73.6, the highest level since May and above the consensus expectation of 72.4, according to Zacks. The Conference Board's Leading Economic Index rose 0.4% in July, to 95.8 after a 0.4% decline in June.

Conference Board economist Ataman Ozyildirim said that the majority of the index components improved during July, "led by large contributions from housing permits and initial unemployment claims," adding that the index's "six-month growth rate seems to be stabilizing, pointing to a continuing but slow expansion in economic activity for the rest of the year."

The KBW Bank Index ( I:BKX) rose slightly to close at 1% to close at 47.23, with all but four of the 24 index components rising for the day.

Zions Bancorporation's shares have now returned 21% year-to-date, following a 33% decline during 2011.

The shares trade for just above their reported June 30 tangible book value of $19.65, and for 11 times the consensus 2013 earnings estimate of $1.75 a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $1.14.

Zions owes $700 million in federal bailout funds received in November 2008 through the Troubled Assets Relief Program, or TARP, having repaid $700 million in TARP money during the first quarter.

The company on July 23 reported second-quarter earnings applicable to common shareholders of $55.2 million, or 30 cents a share, increasing from $25.5 million, or 14 cents a share, during the first quarter, and $29.0 million, or 16 cents a share, during the second quarter of 2011. The earnings improvement mainly reflected "dividends and other investment income from private equity investments," primarily at its Amegy subsidiary.

The second-quarter results were also boosted by a $32 million release of loan loss reserves.

Jefferies analyst Ken Usdin rates Zions a "Hold," with a price target of $21, and said after the company announced its second-quarter results that "the core net interest margin was weaker and questions on capital remain," and forecasted "a lower net interest income (NII) trajectory (core NII to decline into mid-2013)," causing him to lower his earnings estimates by a nickel a share, to $1.20 for 2012, and $1.75 for 2013.

Usdin said that "questions on capital remain" for Zions, as the company estimated a Basel III Tier 1 common equity ratio of 7.8%, and the analyst said that depending on how federal regulators' new rules on calculating risk-weighted assets are finalized, the company's CDO swap could cause its risk-weighted assets to increase by $4 billion, "causing the pro forma Basel III Tier 1 common ratio to be about 60bp lower, or around 7.2%."

The analyst said "Our $21 price target (from $22) applies a 12x multiple to our '13 EPS estimate of $1.75. This is lower than the historical multiple of 14x ('00-'07) to account for lower post-cycle growth and lower return on equity (ROE)."

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.