Here's Why You Should Hold BancorpSouth (BXS) Stock Now
While BancorpSouth (BXS) will ride high on inorganic growth, capital-deployment initiatives and fee income growth, concentration risks and rising expe...
On Sep 17, we issued an updated report on BancorpSouth Bank BXS. The firm’s rising fee income, impressive capital-deployment initiatives, and inorganic growth via mergers and acquisitions (M&A) are the major driving factors. However, a significant exposure to consumer mortgage and commercial real estate loans along with a rising cost base are headwinds.
The company’s earnings estimates have been unchanged for the current year and 2022, in the last 30 days. It currently carries a Zacks Rank #3 (Hold).
Shares of the company have lost 9.1% over the past six months compared with the 5.5% decline recorded by the industry.
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BancorpSouth has been undertaking measures to boost its fee income. Fee income witnessed a five-year (2016-2020) compound annual growth rate (CAGR) of around 26%, mainly on higher credit and debit card income along with a rise in deposit service charges. The rising trend continued in the first half of 2021. The company’s fee income is expected to continue rising in the quarters ahead, as lower interest rates will likely result in higher originations and support the mortgage segment’s performance.
The company’s capital-deployment plans, given its stable debt/equity position and the consistently improving performance over the last few quarters, are a source of comfort. We are encouraged by BancorpSouth’s ability to generate positive cash flows, and enhance shareholders’ value through regular dividend payments and share repurchases.
Furthermore, the company had a long-term debt of $4.2 million, and cash and due from banks of $331.8 million, as of Jun 30, 2021. With a high cash level, its earnings before interest and tax have been 27.4 times the interest expenses and increased in the past few quarters. With a record of continued bottom-line growth, BancorpSouth has an advantageous position if the economic situation worsens.
Also, with a solid liquidity position, the company is well poised to undertake investments through M&As. The company has been on an acquisition spree, fortifying its footprint in various areas. The transactions are anticipated to continue being accretive to its earnings over the long run.
However, the company’s credit quality deteriorated in 2020 due to the pandemic and might remain under pressure in the upcoming period. Furthermore, though BancorpSouth’s non-interest expenses witnessed a declining trend in the first half of 2021, the same saw a three-year CAGR of 5.5% in 2020, on rise in almost all components of expenses, including higher personnel costs. Therefore, its inorganic growth and digitization efforts might continue inflating expenses in the days to come.
The company has significant exposure to consumer mortgage and commercial real estate loans, which makes us apprehensive about its growth prospects. As of Jun 30, 2021, the bank’s exposure to these loan portfolios constituted around 64% of total loans. If there is any significant deterioration in the real estate prices due to the pandemic-induced slowdown, it will dampen the company’s near-term profitability.
Stocks to Consider
The Zacks Consensus Estimate for TowneBank’s TOWN 2021 earnings has moved 4.7% north over the past 30 days. The company’s shares have gained 27.2% so far this year. It carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
MetroCity Bankshares, Inc.’s MCBS shares have appreciated 43.9% so far this year. Further, the Zacks Consensus Estimate for the ongoing-year earnings has moved 3.1% north in the past 30 days. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for First Guaranty Bancshares, Inc.’s FGBI 2021 earnings has moved up 14.9% in 60 days’ time. The company’s shares have rallied 7.2% in the year so far. It flaunts a Zacks Rank #1, at present.
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BancorpSouth Bank (BXS): Free Stock Analysis Report
Towne Bank (TOWN): Free Stock Analysis Report
First Guaranty Bancshares, Inc. (FGBI): Free Stock Analysis Report
MetroCity Bankshares, Inc. (MCBS): Free Stock Analysis Report
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