Zions Bank Earnings: Earnings Pressure Is Here, but It’s More Manageable Than Market Prices Imply

While no-moat-rated Zions' first-quarter results showed that earnings pressure is building, we view the pressure as being quite manageable. We had already expected that fourth-quarter results would be the peak for profitability during the current rate cycle, and while the drop off from that peak has accelerated a bit more than we expected, it was not that categorically different. If anything, the bank's results were a bit better than our updated “shocked” projections, which were published at the end of March. As we revise our projections again to make sure we are being prudent with our through-the-cycle net interest margin, or NIM, estimates (assuming that rates eventually fall from current levels), we expect to decrease our $58 per share fair value estimate for Zions by a low- to mid-single-digit percentage. Even with that adjustment, we believe the shares remain materially undervalued.