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On Wednesday, Keefe, Bruyette & Woods analyst adjusted the price target for Zions Bancorp (NASDAQ: NASDAQ:ZION) shares, raising it from $65.00 to $70.00 while maintaining a Market Perform rating. McGratty's decision reflects his positive view on the bank's earnings potential and stock valuation relative to its peers.
Zions Bancorp's solid pre-provision net revenue (PPNR) results, despite being partially offset by increased credit costs and migration trends, have led to an upward revision of earnings estimates for 2025 and 2026.
Analyst increased the earnings estimates by 6% for 2025 and by 5% for 2026, citing stronger net interest income (NII) and fees as the primary drivers. This revision is based on the bank's guidance, which suggests favorable core PPNR trends and a commitment to positive operating leverage.
The bank has demonstrated consistent shareholder returns, maintaining dividend payments for 54 consecutive years with a current yield of 2.9%. InvestingPro subscribers can access detailed financial health scores and additional insights in the comprehensive Pro Research Report.
The analyst's model assumes a 200 basis point improvement in operating leverage for both 2025 and 2026, coupled with enhanced operating efficiency. McGratty noted that, at 10 times the revised 2026 earnings estimate, Zions Bancorp is trading at a mid-single-digit price-to-earnings (P/E) discount compared to its Bank Index (BKX) peers.
Currently trading at a P/E ratio of 13.4x and with a market cap of $8.7 billion, InvestingPro analysis indicates the stock is undervalued. He believes that a positive re-rating of the stock to levels closer to its peers is very achievable in the near term.
However, McGratty also pointed out a potential near-term concern for investors, which is the market's reaction to the bank's credit migration and normalization in the fourth quarter of 2024, including elevated net charge-offs (NCOs) and a 37% quarter-over-quarter increase in classified loans.
In conclusion, while the analyst maintained a Market Perform rating on Zions Bancorp shares, he expressed optimism that the bank's positive guidance for 2025 should support its stock price in the near future.
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