Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Market leaders have certainly capitalized on rising interest rates and strong loan demand to boost profitability, helping fuel a 13.9% gain for the banking industry over the past six months. This performance has closely followed the S&P 500.
Regardless of these results, investors must exercise caution as many banks are sensitive to interest rate fluctuations and economic cycles. On that note, here are three bank stocks we’re steering clear of.
Zions Bancorporation (ZION)
Market Cap: $8.85 billion
Founded in 1873 during Utah's pioneer era and named after Mount Zion in the Bible, Zions Bancorporation (NASDAQ: ZION) operates seven regional banks across the Western United States, providing commercial, retail, and wealth management services to over a million customers.
Why Does ZION Worry Us?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Estimated net interest income decline of 37.3% for the next 12 months implies a challenging demand environment
- Flat earnings per share over the last two years lagged its peers
Zions Bancorporation’s stock price of $59.88 implies a valuation ratio of 1.3x forward P/B. To fully understand why you should be careful with ZION, check out our full research report (it’s free for active Edge members).
Synovus Financial (SNV)
Market Cap: $7.31 billion
Tracing its roots back to 1888 when a worker accidentally dropped a textile mill payroll into the dust, prompting the need for better banking, Synovus Financial (NYSE: SNV) is a regional financial services company that provides commercial and consumer banking, wealth management, and specialized lending services across five southeastern states.
Why Does SNV Fall Short?
- Net interest income trends were unexciting over the last five years as its 3.9% annual growth was below the typical banking firm
- Projected net interest income growth of 4.7% for the next 12 months suggests sluggish demand
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 8.3% annually
Synovus Financial is trading at $52.50 per share, or 1.3x forward P/B. Check out our free in-depth research report to learn more about why SNV doesn’t pass our bar.
National Bank Holdings (NBHC)
Market Cap: $1.50 billion
Operating under familiar local brands like Community Banks of Colorado, Bank Midwest, and Bank of Jackson Hole, National Bank Holdings (NYSE: NBHC) operates regional banks across Colorado, Kansas, Missouri, Wyoming, Texas, and other western states, offering commercial, business, and consumer banking services.
Why Do We Steer Clear of NBHC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.4% annually over the last two years
- Performance over the past two years shows each sale was less profitable as its earnings per share dropped by 6.5% annually, worse than its revenue
- Estimated tangible book value per share growth of 4.5% for the next 12 months implies profitability will slow from its two-year trend
At $39.68 per share, National Bank Holdings trades at 1.1x forward P/B. Read our free research report to see why you should think twice about including NBHC in your portfolio.
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