Is Zions Bancorp a Hard Sell?

With shares of Zions Bancorp (NASDAQ:ZION) trading at around $22.89, is ZION an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Zions recently reported Q4 EPS of $0.19 and revenue of $552.40 million. Profit was down 35 percent year-over-year due to an impairment charge on CDO securities. That statement should give any investor pause. You could make a solid argument that CDOs were the number-one catalyst for the near collapse of the financial system in 2008. Whether you’re a fan of Warren Buffet or not, you have to respect his track record. He has stated that, “CDOs spread risk and uncertainty about value of the underlying assets more widely, rather than reduce risk through diversification.” You can do with this information as you please, but Zions Bancorp has placed riskier bets than the average regional bank, and there is a lack of transparency.

Getting back to the last quarter, excluding FDIC-supported loans, loans and leases increased by $463 million to $37.1 billion. Compared to Q3, net loan and lease charge-offs declined 51 percent, and nonperforming lending-related assets declined 11 percent. Credit quality and net interest income exceeded expectations, but net interest income might be challenging ahead. Moderate loan growth should offset any pressure on net interest margin. There has been a reduction in problem loans, but there has been a rise in operating expenses. As you can see, wherever there is good news, there is bad news to match it. Looking ahead, Zions Bancorp plans to “execute capital actions to significantly reduce interest expense.” If you read the company’s press release, you will find many statements of this nature where what is being said can be sold, but without detail.  

Despite the negativity thus far, there are several positives. Let’s take a look at some important numbers…