CFR Cullen Frost Bankers Inc

We are downgrading our recommendation on Texas Capital Bancshares Inc. (TCBI) to Neutral from Outperform as we believe that the positive factors have already been priced in the current valuation.

Texas Capital’s third-quarter 2011 operating earnings of 56 cents per share were well ahead of the Zacks Consensus Estimate of 50 cents. The results also outpaced the prior-year earnings of 25 cents per share. Quarterly results benefited from an increase in net interest income. However, lower non-interest income and higher expenses were the dampeners.

For Texas Capital, which has peers such as First Financial Bankshares Inc. (FFIN) and Cullen/Frost Bankers Inc. (CFR), the business model remains a key driver of growth. Additionally, the gain in market share from its competitors and organic growth augur well.

However, Texas Capital continues to experience an increase in expenses. Though the company’s efforts to hire experienced bankers and expand its presence are encouraging, the resultant expenses, which continue to grow nearly as fast as revenues, negate the incremental effects of business expansion.

Yet, a solid capital position, organic growth and improving trends in credit metrics augur well. Though  expenses  have  increased  following  the company’s  efforts  to  hire  experienced  bankers, they have also led to an expansion of its business, which  is  encouraging.

Hence, we believe a significant turnaround will remain elusive in the near term, based on the slow recovery in economy. We believe that the risk-reward profile of the company is currently balanced and hence it supports our Neutral recommendation.

Texas Capital retains a Zacks #1 Rank, which translates into a short-term Strong Buy recommendation.

 
CULLEN FROST BK (CFR): Free Stock Analysis Report
 
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