Prosperity Bancshares has been treading water for the past six months, recording a small loss of 2.7% while holding steady at $72.51. The stock also fell short of the S&P 500’s 10.4% gain during that period.
Is there a buying opportunity in Prosperity Bancshares, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Prosperity Bancshares Will Underperform?
We don't have much confidence in Prosperity Bancshares. Here are three reasons we avoid PB and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income.
Regrettably, Prosperity Bancshares’s revenue grew at a weak 1.6% compounded annual growth rate over the last five years. This was below our standards.
2. Net Interest Income Points to Soft Demand
While bank generate revenue from multiple sources, investors view net interest income as a cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
Prosperity Bancshares’s net interest income has grown at a 1.3% annualized rate over the last five years, much worse than the broader banking industry and in line with its total revenue. This was driven by its loan growth as its net interest margin, which represents how much a bank earns in relation to its outstanding loan book, declined throughout that period.
3. EPS Growth Has Stalled
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Prosperity Bancshares’s flat EPS over the last five years was below its 1.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
We see the value of companies driving economic growth, but in the case of Prosperity Bancshares, we’re out. With its shares lagging the market recently, the stock trades at 0.9× forward P/B (or $72.51 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Prosperity Bancshares
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