BancorpSouth (BXS) Displays Expense Control: Time To Hold?

A favorable operating backdrop with the anticipation of another interest rate hike by the Fed has driven investors’ optimism for banking stocks. Therefore, we can add some of them to our portfolio based on the banks’ strong fundamentals and solid long-term prospects.

BancorpSouth Bank (NYSE:BXS) is one such stock. Efficient cost control, improving credit quality and fee income are major driving factors. However, due to significant lower yields from earnings assets than interest bearing liabilities, strain on margins is a concern.

Effective cost-control measures, along with a diversified fee income base and steady capital deployment activities, aided the company to rally 7.4% over the past six months compared with 5.1% growth recorded by the industry.

The company’s earnings estimates remained unchanged for the current year, in the last 30 days. It currently carries a Zacks Rank #3 (Hold).

Successful efforts toward expense management have been reflected by BancorpSouth. The company’s non-interest expenses declined at a five-year compounded annual growth rate (CAGR) of 0.8% in 2012-2016, though one-time legal settlement charge lead to elevated expenses in 2015. The declining trend continued into the first nine months of 2017 as well.

BancorpSouth is undertaking measures to improve its non-interest income. Notably, this is evident from a three-year (2014-2016) CAGR of 1.8%. The uptrend continued into the first nine months of 2017. A notable increase in mortgage banking fees was one of the primary reasons for the steady rise in fee income.

We remain encouraged by BancorpSouth’s ability to generate positive cash flows and enhance shareholders’ value through regular dividend payments and share repurchases.

However, the company has been experiencing pressure on net interest margin (NIM). Though the bank’s NIM exhibited year-over-year improvement in 2014, it has been steadily declining for the past several years, including 2016 and the first nine months of 2017. Further, BancorpSouth has significant exposure to consumer mortgage and commercial real estate loans. Though the housing sector has been gradually improving, any future deterioration in the real estate prices will pose a risk for the company.

Stocks to Consider

Enterprise Financial Services Corporation (NASDAQ:EFSC) has been witnessing upward estimate revisions for the last two months. Additionally, the stock jumped more than 12% over the past year. It currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First Financial Bancorp (NASDAQ:FFBC) has been witnessing upward estimate revisions for the past 60 days. Also, the company’s shares have risen nearly 5.2% in six months’ time. It holds a Zacks Rank of 2, at present.

Federated Investors, Inc. (NYSE:FII) has been witnessing upward estimate revisions for the past 30 days. In six months’ time, the company’s share price has been up more than 16%. It also carries a Zacks Rank of 2.

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