As investors have shifted back to a "risk on" attitude towards banks, or at least less risk-averse, it's fair to wonder if the very conservatively-run Prosperity Bancshares (PB) can keep pace. Over the last one-year and three-year comparison periods (not good ones for banks in general), Prosperity has outperformed the sector, but the shares have lagged the sector some since this recent rally.
While Prosperity is unlike to ever be an organic growth star (the bank has historically struggled to meet even its own modest organic loan growth targets), the management team has shown itself to be quite adept at doing deals, both in terms of target selection and integration, and management made it clear that they're ready to do deals. So while earnings growth prospects from spread lending activities seem lackluster, I think ignoring the potential accretion benefits of future deals would be ignoring a major driver to the story.
On balance, I lean positive on Prosperity shares. The stock is not cheap on conventional valuation metrics (not unusual for any quality Texas bank), but factoring in future capital deployment leads me to believe that these shares reasonably be expected to generate double-digit returns from here, with much of the growth driven by inherently unpredictable M&A activity.
To read more, follow this link:
Prosperity Is Conservatively Run, But Back On The Hunt For Accretive Bank Deals
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