Cullen/Frost Bankers has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 15% to $161.51 per share while the index has gained 12%.
Is now the time to buy Cullen/Frost Bankers, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Cullen/Frost Bankers Not Exciting?
We don’t have much confidence in Cullen/Frost Bankers. Here are three reasons we avoid CFR, plus one stock we’d rather own.
1. Lackluster Revenue Growth
Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. Cullen/Frost Bankers’s recent performance shows its demand has slowed as its annualized revenue growth of 7.2% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
Note: Quarters not shown were determined to be outliers because they were impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.
2. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
Cullen/Frost Bankers’s EPS grew at an unimpressive 10.7% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 7.2% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
3. TBVPS Projections Show Stormy Skies Ahead
Tangible book value per share (TBVPS) growth is driven by a bank’s ability to earn more than its cost of capital through lending activities while maintaining a strong balance sheet.
Over the next 12 months, Consensus estimates call for Cullen/Frost Bankers’s TBVPS to shrink by 6% to $67.69, a sour projection.
Final Judgment
Cullen/Frost Bankers isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 2.1× forward P/B (or $161.51 per share). Investors with a higher risk tolerance might like the company, but we think the potential downside is too great. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
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