On Monday, Morgan Stanley adjusted its stance on Zions Bancorp (NASDAQ:ZION), upgrading the bank's stock from Underweight to Equalweight and setting a new price target of $54.00. The revision reflects the firm's view of the bank's potential to benefit from a changing interest rate environment.
Zions Bancorp's recent performance has shown a disparity when compared to its peers. Quarter to date, the bank's stock has seen a 7% increase, which is lower than the median of 11% observed in the coverage group of similar stocks. This underperformance has been one of the factors considered by Morgan Stanley in the reassessment of Zions Bancorp's stock rating.
The upgrade is primarily driven by the bank's sensitivity to liabilities, which is expected to be advantageous as deposit rates decrease. Morgan Stanley anticipates an improved net interest margin (NIM) for Zions Bancorp due to lower deposit costs. The firm's model predicts a decrease in the 4Q25 Interest Bearing Deposit yield by approximately 120 basis points, from 3.2% to 2.0%.
Morgan Stanley's analysis also includes a projection of deposit betas, which measure the responsiveness of deposit rates to changes in the broader interest rate environment. Zions Bancorp's historical performance indicates a deposit beta of around 60% as rates increased. This experience is used to estimate future deposit rate adjustments.
Overall, the bank is expected to see a NIM expansion of 14 basis points, which aligns with the performance of its peers. While Zions Bancorp is projected to benefit more than its peers from deposit rate reductions, this is slightly offset by a less favorable position in fixed-rate loan repricing. The new valuation and the prospect of reduced funding costs contribute to the rationale behind the stock's upgrade to Equalweight by Morgan Stanley.
In other recent news, Zions Bancorporation (NASDAQ:ZION) has made significant strides in its business operations. The company has announced an agreement to acquire four FirstBank branch locations through its subsidiary, California Bank & Trust. The deal, which includes approximately $730 million in customer deposits and $420 million in loans, is expected to be finalized in the first quarter of 2025.
The acquisition will expand the company's footprint in the Coachella Valley, adding around 15,000 new customers and boosting its market share. Meanwhile, Zions Bancorporation reported steady financial results for the second quarter of 2024, with net earnings of $190 million and diluted earnings per share of $1.28. The company also declared dividends for both common and preferred shareholders, demonstrating its financial stability.
In the realm of analyst notes, Jefferies and Wells Fargo have revised their price targets for Zions Bancorporation, while Argus Research has downgraded its rating from Buy to Hold due to valuation concerns. These are the latest developments in the company's ongoing operations and financial performance.
InvestingPro Insights
Complementing Morgan Stanley's upgrade of Zions Bancorp (NASDAQ:ZION), recent data from InvestingPro provides additional context to the bank's financial position and market performance. As of the last twelve months ending Q2 2024, Zions reported a revenue of $2.95 billion, with an operating income margin of 34.72%. This solid profitability is reflected in the bank's P/E ratio of 11.2, suggesting a relatively attractive valuation compared to earnings.
InvestingPro Tips highlight Zions' strong dividend history, having maintained dividend payments for 54 consecutive years and raised them for 11 straight years. This consistency in shareholder returns aligns with the bank's current dividend yield of 3.53%, which may appeal to income-focused investors in the current economic climate.
The bank's price-to-book ratio of 1.23 indicates that the stock is trading slightly above its book value, which is not uncommon for profitable banks. This metric, combined with analysts' predictions of profitability for the current year, supports Morgan Stanley's more optimistic outlook on Zions' stock.
For investors seeking a deeper understanding of Zions Bancorp's financial health and market position, InvestingPro offers 14 additional tips, providing a comprehensive analysis to inform investment decisions.
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