Zions Bancorp (ZION) Holds Steady as Financials Fail

As I mentioned in my last update , I selected regional lender Zions
Bancorporation (NASDAQ: ZION ) as my pick for the best stock for 2011 at a time
when financials stocks were enjoying a surge of buying interest. Although the
markets focus shifted elsewhere in the months that followed, financial stocks
have avoided the brunt of the selling pressure that has pressured the major
averages over the last two weeks. And thats good news since I still think ZION
holds great potential as the company return to health after recovering from the
2008 housing crash and financial crisis. The companys latest earnings report
bore this out: ZION reported Q1 operating earnings of seven cents per share vs.
the 17 cent loss analysts were expecting and last years 49 cent loss. More
importantly, as I touched on in my ZION stock update a month ago, loan losses
continued to decline as the real estate market in the Southwest region
stabilizes. Net loan charge offs dropped 44% to $141 million vs. $251 million in
the fourth quarter of 2010. Thats a huge quarter-over-quarter sequential decline
and presages future earnings power. As a result, executives released some of
their loan loss reserves, which dropped to $60 million from $173 million in Q4.
Investors were pleased, with shares up nearly 5% from their pre-earnings levels.
Analysts were happy too, with the team at FBR Capital upping their share price
target form $22 to $30 (which would be worth a 25% rise from current levels) on
better credit trends. They also noted that ZION is well positioned for loan
growth and rising interest rates. FBR analysts are overall warming to regional
banks given their leverage to commercial and industrial lending and improved
loan performance. ZION is one of their top picks in the sector. Looking forward,
management guided Q2 loan growth of flat to modestly positive vs. Credit Suisses
estimate for a small decline. Also, the company is set to hold discussions with
Federal regulators on the repayment of TARP bailout funds later this quarter
with actual repayment in Q3. Repayment will reduce the need to raise fresh
capital from private investors and remove the risk of shareholder dilution.
Overall, ZIONs fundamentals continue to improve as it recovers from its near
death experience back in 2009 when shares traded as low $5.87. Shares should
benefit from a tailwind soon as financial stocks stabilize and end four months
of relative weakness against the broad market. Check out the other FREE stock
picks that make up InvestorPlace.com's Top 10 Stocks for 2011. Be sure to
check out Anthonys new investment advisory service, The Edge . A two-week free
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up. The author can be contacted at anthony@edgeletter.com . Feel free to comment
below. Check out the other FREE stock picks that make up InvestorPlace.com's
Top 10 Stocks for 2011.