Zions (ZION) Up 2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Zions (ZION). Shares have added about 2% in that time frame, underperforming the S&P 500.

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

Zions Q1 Earnings Lag Estimates, Revenues Decline Y/Y

Zions’ first-quarter 2020 net earnings per share of 4 cents missed the Zacks Consensus Estimate of 48 cents. Results included certain notable non-recurring items.

While improvement in non-interest income was a positive, a significant increase in provision for credit losses and lower net interest income hampered results.

Net income attributable to common shareholders was $6 million, down from $205 million recorded in the prior-year quarter.

Revenues & Expenses Down

Net revenues for the quarter under review were $689 million, down 3.5% year over year.

Net interest income was $548 million for the quarter, down 4.9% from the prior-year quarter. The decline resulted from a fall in interest income. Net interest margin contracted 27 basis points (bps) year over year to 3.41%.

Non-interest income amounted to $134 million, up 2% from the year-ago quarter. The increase was driven by a rise in total customer-related fees, and wealth management and trust fees.

Adjusted non-interest expenses were $407 million, down 6% from the prior-year quarter.

Efficiency ratio was 57.7%, up from 60.2% reported a year ago. A rise in efficiency ratio indicates a decline in profitability.

Balance Sheet Strong

As of Mar 31, 2020, net loans held for investment were $49.2 billion, up from $48.2 billion recorded at the end of the prior quarter. Total deposits were $57.5 billion, marginally up from $57.1 billion recorded at the end of fourth-quarter 2019.

Credit Quality: A Mixed Bag

The ratio of non-performing assets to loans and leases as well as other real estate owned shrunk 6 bps year over year to 0.56%. Provision for credit losses was $258 million as compared with $4 million in the year-earlier quarter.

However, net loan and lease charge-offs were $7 million at the end of the reported quarter compared with no charge-offs.

Capital & Profitability Ratios Deteriorate

Tier 1 leverage ratio was 9% as of Mar 31, 2020, compared with 9.9% at the end of the prior-year quarter. Tier 1 risk-based capital ratio was 11%, down from 12.3% in the year-ago quarter.

At the end of the first quarter, return on average assets was 0.08%, down from 1.26% as of Mar 31, 2019. Also, return on average tangible common equity was 0.4%, down from 13.9% reported in the year-ago quarter.

Share Repurchases

During the quarter, Zions repurchased $75 million worth of shares.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted 10.93% due to these changes.

VGM Scores

Currently, Zions has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Zions has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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