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Here's Why You Should Hold Cullen/Frost (CFR) Right Now

Cullen/Frost Bankers, Inc. CFR is expected to witness an improvement in the net interest income (NII) on the back of higher rates and loan growth. Its strong balance sheet position will aid in steady capital deployment activities.Yet, mounting costs due to expansion moves and inflationary pressures will likely impede bottom-line growth to some extent.

Analysts are less optimistic regarding its earnings growth potential. The Zacks Consensus Estimate for CFR’s 2023 earnings has been revised marginally downward over the past 30 days.

Over the past three months, shares of CFR have plunged 23.3% compared with the industry’s 17.2% decline.

 

Zacks Investment Research
Zacks Investment Research


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The company currently carries a Zacks Rank #3 (Hold).

Backed by a solid improvement in NII and fee income, the bank’s revenues witnessed a compound annual growth rate (CAGR) of 7.4% over the last four years (2019-2022). Going forward, higher rates, decent loan growth and exposure to non-interest-bearing deposits (a low-cost funding source) will continue to boost NII and margin.

CFRcontinues to enhance its presence in the lucrative Texas markets. Capitalizing on the success of its footprint growth in Houston in 2021, the company planned a similar 28-branch expansion in Dallas. Given the pro-business and low-tax scenario in the region, such efforts are apt and will likely drive deposit and loan growth for Cullen/Frost.

Cullen/Frost exhibits a strong balance sheet position. The company has added residential mortgages to its current suite of consumer real-estate products, which will complement home equity. Deposit balances will also help it generate better liquidity to offer loans and meet other general business purposes in the quarters ahead.

A strong balance sheet has enabled CFR to increase dividends annually for 28 consecutive years. This reflects the company’s commitment to return value to its shareholders.

However, the flaring cost base exposes it to operational risks. Going forward, expenses are likely to inflate on Houston and Dallas expansion moves and wage pressures from recruitments. So, mounting expenses will likely remain a near-time headwind for bottom-line growth as the company focuses on increasing its franchise.

The majority of Cullen/Frost’s loan portfolio comprises total commercial (C&I, as well as commercial real estate or CRE lending). Its loan mix underpinned nearly 81% of CRE and C&I loans in 2022. Such a lack of diversification can be risky for the company in case of any downturn.

Stocks Worth a Look

A couple of better-ranked stocks from the finance space are BOK Financial BOKF and Red River Bancshares RRBI.

The Zacks Consensus Estimate for BOKF’s current-year earnings has been unchanged over the past 30 days. Its shares have edged down 0.4% in the past six months. Currently, BOKF carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RRBI currently carries a Zacks Rank #2. Its earnings estimates for 2023 have been revised marginally upward over the past 30 days. In the past six months, RRBI’s shares have declined 7.2% due to broader market concerns.

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BOK Financial Corporation (BOKF) : Free Stock Analysis Report

Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report

Red River Bancshares, Inc. (RRBI) : Free Stock Analysis Report

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Zacks Investment Research