Good years tend to follow great years, and 2024 should be no exception. History offers an elevated level of optimism for the upcoming year, based on a variety of fundamental, technical, and historical precedents. Cullen/Frost Bankers (CFR) is a “Strong Buy,” notes Sam Stovall, chief investment strategist at CFRA Research.
Positive market factors include the end of the Fed’s rate-tightening cycle, double-digit EPS growth expectations, first-term presidential election patterns, and second-year bull market returns, all within the context of a US economy that continues to avoid recession.
With the prospects for lower interest rates in 2024, we see financials and smaller-cap stocks finally joining the party. With that in mind, CFR is an income-oriented, high-quality regional bank to consider. It specializes in commercial/commercial real estate lending in metropolitan areas within Texas, and offers banking, trust and investment management, and insurance services.
Our Strong Buy recommendation reflects our view that CFR is one of the best-positioned banks in today’s higher-for-longer rate environment. Unlike other banks that have been forced to play defense following the collapse of Silicon Valley Bank, CFR is growing its loan book as it takes advantage of its attractive client demographics (100% of CFR’s deposits are in the fast-growing Texas area).
Additionally, we see CFR as uniquely positioned to manage deposit outflows and funding pressures as the bank maintains a loan-to-deposit ratio of just 43% vs. peers’ 85%. This stronger ratio will likely allow CFR to maintain above-average loan growth without the cost of significant net interest margin deterioration.
CFR recently paid a dividend yield in excess of 3%, while maintaining a payout ratio that is below 40%. The stock also carries an above-average S&P Earnings & Dividend Quality Ranking of A.
