Is Frost Bank Attractively Priced After Recent 6.2% Share Price Rebound?

• Wondering if Cullen/Frost Bankers at around $128.74 is a bargain or a value trap right now? This article will walk through the numbers so you can decide with confidence.
• The stock has been fairly steady over the last year, down just 0.1%, but that calm hides a 6.2% gain over the past month, even as year to date returns still sit at roughly -3.0%.
• Recent moves have come as investors refocus on regionals with strong Texas exposure and conservative balance sheets, with Cullen/Frost often cited as a higher quality name among mid sized banks. In addition, ongoing discussion around interest rate cuts and deposit competition has kept sentiment shifting quickly between caution and optimism for the sector.
• Right now, Cullen/Frost scores a 3 out of 6 on our valuation checks, which suggests there is some value on offer but not a deep discount. Next, we will break that down across multiple valuation approaches and introduce a more nuanced way to think about fair value by the end of the article.

Find out why Cullen/Frost Bankers's -0.1% return over the last year is lagging behind its peers.

Approach 1: Cullen/Frost Bankers Excess Returns Analysis

The Excess Returns model asks a simple question: how much profit can Cullen/Frost Bankers generate above the return that shareholders reasonably demand, and for how long can it sustain that gap? Those extra profits, or excess returns, are then capitalized into today’s intrinsic value.

Cullen/Frost starts with a solid foundation, with Book Value at roughly $67.64 per share and a Stable Book Value estimate of $75.61 per share, based on forecasts from 9 analysts. Its Stable EPS is estimated at $10.63 per share, informed by weighted future Return on Equity estimates from 12 analysts and an Average Return on Equity of 14.06%. Against a Cost of Equity of about $6.20 per share, this implies an Excess Return of $4.43 per share, a meaningful value creation spread.

Rolling these assumptions together, the Excess Returns model produces an intrinsic value estimate of about $165.20 per share, implying the stock is roughly 22.1% undervalued versus the recent price around $128.74.

Result: UNDERVALUED

Our Excess Returns analysis suggests Cullen/Frost Bankers is undervalued by 22.1%. Track this in your watchlist or portfolio, or discover 916 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Cullen/Frost Bankers.

Approach 2: Cullen/Frost Bankers Price vs Earnings

For a profitable bank like Cullen/Frost, the price to earnings ratio is a practical way to gauge value, because it links what investors pay today to the profits the business is already generating. In general, faster growing and lower risk companies can justify a higher PE, while slower growth or higher uncertainty should translate into a lower, more conservative multiple.

Cullen/Frost currently trades on a PE of about 13.2x, a touch below the average of its direct peers at roughly 14.4x and slightly above the broader Banks industry on about 12.0x. On the surface, that suggests the stock is reasonably placed, neither the clear bargain nor the obvious expensive outlier in its peer group.

Simply Wall St also uses a proprietary Fair Ratio for PE, which estimates what multiple a stock should trade on after accounting for its earnings growth outlook, profitability, risk profile, industry and market cap. Because this Fair Ratio of around 11.1x is tailored to Cullen/Frost’s fundamentals, it is more informative than a simple comparison with peers and industry averages. With the actual PE of 13.2x sitting above this Fair Ratio, the shares appear modestly overvalued on this measure.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Cullen/Frost Bankers Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your own stories about a company that tie its business outlook to a set of numbers, including future revenue, earnings, profit margins and a fair value estimate.

On Simply Wall St’s Community page, used by millions of investors, Narratives make this process easy and accessible by guiding you to connect what you believe about Cullen/Frost’s growth, risks and competitive position to a concrete financial forecast and a resulting fair value that you can compare with today’s share price.

Narratives are dynamic, updating as new information like earnings results, guidance changes or major news comes in. This means your view of whether Cullen/Frost is a buy, hold or sell evolves automatically as the facts change, rather than being anchored to a static PE or target price.

For example, one investor might build a more optimistic Cullen/Frost Narrative that supports a fair value near $154 per share, thanks to steady Texas growth and improving margins. Another more cautious investor could reasonably arrive at a Narrative closer to $105 per share if they are concerned about regional concentration, competition and funding pressures. Both views can be tracked against the current price to support clearer decisions.

Do you think there's more to the story for Cullen/Frost Bankers? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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