Cullen/Frost's Revenue Growth On Track, Higher Costs A Woe

Cullen/Frost Bankers, Inc. (NYSE:CFR) reported impressive earnings in the last reported quarter, supported by higher net interest income. The company’s increasing revenues and strong capital position are the key positives. However, rising expenses remain a concern.

The company’s total deposits comprise of majorly non-interest bearing deposits, a low-cost funding source. With the current rising rate environment, net interest income and margins are expected to grow in the near term.

Cullen/Frost’s organic growth story remains impressive. Its revenues witnessed a compound annual growth rate (CAGR) of 5.9% over the last five years (ended 2016). Further, deposits recorded a CAGR of 7.3% in the same time period. This reflects the company’s strong liquidity position.

Further, Cullen/Frost’s continues to enhance shareholder value through dividend hikes and share buybacks programs. Also, it has an ongoing $100 million share repurchase program. In Apr 2017, the company increased its common stock dividend by 5.6%. Further, its debt-to- equity ratio compares favorably with the broader industry, indicating that Cullen/Frost shall continue raising dividends.

However, the company’s non-interest expenses have witnessed a CAGR of 6.3% over the last five years (2012–2016) due to its focus on franchise development. Also, Cullen/Frost’s significant exposure to real estate loans remains a concern.

Stocks to Consider

Some stocks worth considering in the financial space include Comerica Incorporated (NYSE:CMA) , M&T Bank Corporation (NYSE:MTB) and Lakeland Bancorp, Inc. (NASDAQ:LBAI) .

Comerica witnessed an upward earnings estimate revision of 8.8% for the current year in the past 60 days. Also, its shares have rallied about 80% over the last one year.

M&T Bank’s earnings estimates have been revised upward by 2.4% for the current year, in the past 60 days. Also, over the last one year, its shares have gained more than 40%.

Lakeland has witnessed an upward earnings estimate revision of 2.8% for the current year, in the past 60 days. Also, its shares have gained more than 60%, over the last one year.

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