Zions Primed for Rising Rates

NEW YORK (TheStreet) -- Zions Bancorporation (ZION) made quite an impression on analysts at its annual investor conference last week, but not everybody's buying.

Shares of Zions Bancorporation of Salt Lake City closed at $30.90 Friday, returning 3% this year, following a 41% return during 2013. The shares trade for 1.3 times tangible book value, according to Thomson Reuters Bank Insight, and for 15.1 times the consensus 2014 earnings estimate of $2.04 a share. The consensus 2013 EPS estimate is $1.83.

That price-to-tangible book ratio is a bit low for a large regional bank, with the average among the 24 component stocks of the KBW Bank Index (I:BKX) being 1.8, however, the forward price-to-earnings ratio is rather high, when compared to an average of 12.1 for the index components.

But Zions on Thursday outlined several major areas of improvement during 2013, backing up its "base case outlook" for an increase in its return on tangible common equity to 10.3% in 2014 from 7.7% in the fourth quarter of 2013.

The company's earnings improvement during 2013 was "driven by capital actions," including the redemption of $285 million in Series B trust preferred securities paying 8.0%, $257 million in senior notes paying 7.75% and $800 million in Series C preferred stock paying 9.5%. The company also redeemed "$250 million of high cost subordinated debt."

Some of that expensive debt and equity was replaced through the issuance of $800 million in preferred stock with a weighted average dividend rate of 6.2% and $250 million in subordinated debt with a weighted average coupon of 6.1%.

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