Why Is Cullen/Frost (CFR) Down 2% Since the Last Earnings Report?

A month has gone by since the last earnings report for Cullen/Frost Bankers, Inc. (CFR). Shares have lost about 2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Cullen/Frost Q3 Earnings Top Estimates, Costs Soar

Cullen/Frost reported a positive surprise of 7.6% in third-quarter 2017. Earnings per share of $1.41 handily surpassed the Zacks Consensus Estimate of $1.31. Moreover, the reported figure was 13.7% up from $1.24 recorded in the year-ago quarter.

Top-line strength was reflected in the quarter. Further, increase in loans and deposits and a strong balance sheet position were the positives. However, elevated expenses and higher provisions remained major drags.

Net income available to common shareholders came in at $91.1 million, exceeding the year-ago quarter tally by approximately 16.5%.

Revenue Growth Offsets Escalated Expenses

The company’s total revenues were $346 million, up 8.9% from the prior-year quarter.

Net interest income on a taxable-equivalent basis climbed 12.2% year over year to $264.4 million. The upswing is primarily attributable to a rise in earning assets, higher yields on loans and increase in cash balances.

Moreover, net interest margin expanded 20 basis points (bps) year over year to 3.73%, as the Fed’s interest rate hikes led to higher yielding assets.

Non-interest income totaled $81.6 million, slightly down from the year-ago quarter. The decrease was mainly due to net loss on securities transactions and lower insurance commissions and fees.

Non-interest expenses of $186.8 million flared up 3.5% year over year. Increase in almost all the cost components led to elevated expenses in the reported quarter.

Strong Balance Sheet

As of Sep 30, 2017, total loans were $12.7 billion, up 9.5% year over year. Total deposits amounted to $26.4 billion, up 5.2% from the prior-year quarter.

Credit Quality: A Mixed Bag

As of Sep 30, 2017, provision for loan losses more than doubled on a year-over-year basis to $11 million. Also, net charge-offs, annualized as a percentage of average loans expanded 3 bps year over year to 0.20%. Allowance for loan losses, as a percentage of total loans, was 1.21%, down 8 bps from the prior-year quarter.

Non-performing assets were $150 million, up 48.7% from the year-ago quarter.

Profitability and Capital Ratios Improve

As of Sep 30, 2017, Tier 1 risk-based capital ratio was 13.14% compared with 13.24% recorded at the end of the prior-year quarter. Total risk-based capital ratio was 15.19%, up from 14.86% as of Sep 30, 2016. Furthermore, leverage ratio increased to 8.39% from 8.18% as of Sep 30, 2016.

Return on average assets and return on average common equity were 1.19% and 11.71%, respectively, compared with 1.07% and 10.31% witnessed in the prior-year quarter.

Capital Deployment Update

During the third quarter, the company completed $100 million buyback, repurchasing 1.1 million shares at an average price of $88.11.

Notably, the company's board of directors has authorized a new $150-million stock repurchase plan to be completed over a two-year period.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been six moves higher in the last two months.

Cullen/Frost Bankers, Inc. Price and Consensus

 

Cullen/Frost Bankers, Inc. Price and Consensus | Cullen/Frost Bankers, Inc. Quote

VGM Scores

At this time, Cullen/Frost's stock has a subpar Growth Score of D, however its Momentum is doing a bit better with a C. The stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is more suitable for value investors than momentum investors.

Outlook

While estimates have been broadly trending upward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research