Capital Markets Expansion And Digital Advances Will Boost Future Competitiveness

Key Takeaways

• Strategic acquisitions and digital innovations enhance competitive position, customer experience, and revenue growth through increased deposit, loan, and SBA application volumes.
  
• Capital Markets expansion and improved asset yields support income growth, with potential for continued enhancements in net interest margins despite rate fluctuations.
  
• Rising classified loans and higher interest rates risk increased credit losses and diminished net margins and earnings.

Catalysts

Provides various banking products and related services primarily in the states of Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming.

• The acquisition of FirstBank's branches in Coachella Valley is expected to strengthen Zions Bancorporation's competitive position and customer base, which could lead to increased revenues from both deposits and loans.
  
• Expansion in the Capital Markets division has led to record quarterly fees; continued focus in this area is expected to drive significant noninterest income growth, enhancing overall revenue and earnings.
  
• Improving asset yields and a stable funding cost have supported a recent expansion in net interest margin; maintaining this trajectory could positively impact net interest income even in a potentially falling rate environment.
  
• Adoption of new digital application technology for SBA loans has increased application counts and improved the customer experience, which is likely to result in increased loan volumes and revenue growth.
  
• Anticipated improvements in the loan portfolio, particularly in the commercial sector, driven by customer optimism and the potential for declining benchmark rates, are expected to contribute positively to net interest income and earnings growth.

Zions Bancorporation National Association Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Zions Bancorporation National Association's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 21.5% today to 23.5% in 3 years time.
• Analysts expect earnings to reach $793.6 million (and earnings per share of $5.55) by about December 2027, up from $646.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $881.1 million in earnings, and the most bearish expecting $659 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.5x on those 2027 earnings, down from 13.4x today. This future PE is lower than the current PE for the US Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 1.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.04%, as per the Simply Wall St company report.

Zions Bancorporation National Association Future Earnings Per Share Growth

Risks

• The increase in classified loans, especially within the multifamily portfolio due to weaker performance and higher interest rates, could result in higher credit losses, impacting net margins and net earnings.
  
• Net interest margin improvements are sensitive to changes in interest rates, where falling rates could compress margins, thereby affecting net interest income.
  
• Continued potential for deposit cost increases, particularly on interest-bearing deposits, might erode net interest margins and negatively affect net income.
  
• Credit quality has shown further deterioration with increases in non-performing assets and criticized loans, which poses a risk to future earnings due to potential for increased loan loss provisions.
  
• Risks associated with refinancing of real estate assets amid changes in interest rates could limit revenue growth from loan outputs, influencing overall revenue and net earnings.

Valuation

• The analysts have a consensus price target of $58.25 for Zions Bancorporation National Association based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $69.0, and the most bearish reporting a price target of just $50.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $3.4 billion, earnings will come to $793.6 million, and it would be trading on a PE ratio of 12.5x, assuming you use a discount rate of 6.0%.
• Given the current share price of $58.81, the analyst's price target of $58.25 is 1.0% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.