Source: Investing Published 05/08/2024, 11:44
On Monday, Cullen/Frost Bankers, Inc. (NYSE:CFR) saw its rating change as Morgan Stanley downgraded the financial institution from Equal Weight to Underweight. Accompanying the downgrade, the firm raised its target price on the company’s shares to $121.00 from the previous target of $112.00.
The revision in the rating and target price reflects concerns about the bank’s current valuation and interest rate sensitivity. Cullen/Frost shares are trading at 12.6 times 2025 expected earnings per share (EPS), putting the stock at the upper end of Morgan Stanley’s coverage universe. This assessment suggests that there may be limited upside potential for the stock as market conditions improve.
The analyst also pointed to Cullen/Frost’s increased asset sensitivity compared to its peers, suggesting that this could be a downside. In a lower interest rate scenario, the bank’s net interest income (NII) growth could face challenges.
Net interest income is an important metric for financial institutions, representing the difference between the revenue generated from a bank’s assets and the expenses associated with paying its liabilities.
Cullen/Frost’s downgrade comes amid broader scrutiny of financial stocks, with analysts closely watching valuation metrics and interest rate impacts. The bank’s increased asset sensitivity is particularly noteworthy as it could impact its financial performance in a changing interest rate environment.
The new price target of $121.00 represents an upward revision despite the stock’s downgrade, indicating a more nuanced view of the bank’s financial outlook. The revised target implies a forecast of where the stock price is likely to go, taking into account concerns raised by Morgan Stanley’s analysis.
In other recent news, Texas-based Cullen/Frost Bankers has been the subject of interest due to its mixed second-quarter earnings and strong loan growth. The bank reported earnings of $143.8 million, down from its year-over-year earnings of $160.4 million. However, despite a slight decline in average total deposits to $40.5 billion, Cullen/Frost saw strong loan growth of more than 11% to $19.7 billion. This growth is attributed to strategic expansions in major Texas cities, which led to significant gains in deposits, loans, and new households. RBC Capital, a financial services firm, recently revised its outlook on Cullen/Frost shares, raising its price target to $120 from $119, while maintaining a Sector Perform rating. The firm highlighted the bank’s strong second-quarter earnings, driven by continued loan growth, margin improvement, and expense control. Recent developments within Collin/Frost Bankers demonstrate the bank’s continued momentum and the positive impact of its strategic initiatives. Looking ahead, the bank expects loan growth in the high single to low double digits for the full year, with deposit growth expected to be flat or down to 2%. These are the latest highlights for Collin/Frost Bankers, a company that continues to navigate market shifts and expansion efforts.
InvestingPro Insights
As Cullen/Frost Bankers, Inc. (NYSE:CFR) navigates the challenges highlighted by Morgan Stanley, it’s worth noting the company’s consistent track record of dividend reliability. According to InvestingPro data, Cullen/Frost has raised its dividend for 31 consecutive years and maintained its dividend for 32 consecutive years, indicating its commitment to shareholder returns. The current dividend yield is 3.49% with dividend growth of 9.2% over the past 12 months as of Q2 2024, which could appeal to income-focused investors.
Despite the recent downgrade, InvestingPro’s advice suggests a brighter outlook. Analysts have revised their earnings forecasts upward for the coming period, and the company has been profitable over the past 12 months. This profitability is underscored by an operating income margin of 37.6% for the same period. However, the stock has seen a significant decline of 7.69% over the past week, which could be a buying opportunity for long-term investors who believe in the company’s fundamentals and are looking for higher yields.
