BancorpSouth - Messy Earnings And Deal Execution Concerns Weighing On Shares

 

While underlying operating trends appear to be improving, BancorpSouth (BXS) has been a noticeable laggard so far this year. Some of this could be due to concerns about a resurgence of COVID-19 across much of the bank’s core footprint, but I believe a lot of this is due to concerns about the pending merger with Cadence (CADE) – a far larger combination that BancorpSouth has attempted to date. This isn’t necessarily a BXS-specific issue, though, as bank acquirers have generally been underperforming in the market.

I do appreciate the larger risks that go with larger deals, and Cadence does bring a risker loan book with it (considerable presence in energy and hospitality). That said, I think the worst is over for those riskier categories, and I think the expansion of BancorpSouth’s middle-market and corporate banking capabilities will serve the bank well over time, and I likewise see good opportunities on the funding and operating cost side.

This is a “show me” story that could continue to generate lackluster near-term returns until post-deal synergies start appearing (and/or the Street gets more confident on the deal), but I believe BancorpSouth shares are likely trading below underlying fair value.

 

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BancorpSouth - Messy Earnings And Deal Execution Concerns Weighing On Shares