Zions Bancorp draws downgrade as Citi sees 'more favorable risk/reward elsewhere'

By Steve Gelsi

A potential boost to net interest income may be countered by fees and expenses

Zions Bancorp weighed on the S&P 500 on Tuesday as the stock dropped in the wake of a downgrade at Citi on valuation.

Zions (ZION) fell 4% as the fifth-worst performer in the S&P 500 SPX on Tuesday, after Citi analyst Keith Horwitz cut his rating on the regional bank to neutral from buy. Horwitz kept his price target of $37 a share on the company.

"Zion trades near the median on our implied cost of equity metric and we see more favorable risk/reward elsewhere," Horwitz said in a research note published late Monday.

The Salt Lake City, Utah-based bank may benefit from tailwinds such as funding optimization and fixed asset repricing in a boost to net interest income.

However, "we also factor in a more conservative outlook on fees and incremental expense pressure leading us to see slight downside to 2024 consensus earnings per share," Horwitz said.

Factoring in an implied cost of equity at 12%, Zions Bancorp now trades at the median of the group of banks tracked by Citi.

"We continue to see value on longer-term basis, but in the near-term we are downgrading," Horwitz said.

Including Tuesday's moves, Zions stock has fallen 30% in 2023, compared to an 18.3% dip by the KBW Nasdaq Bank Index BKX

-Steve Gelsi

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11-21-23 1017ET

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