UPDATE: Goldman Sachs Upgrades Zions Bancorp (ZION) to Buy

Goldman Sachs upgraded Zions Bancorp (NASDAQ: ZION) from Neutral to Buy with a price target of $35. Analyst Ryan M. Nash called the company a self-help story and he sees further upside to efficiency expectations.

"We believe ZION is poised for outperformance as we see upside to efficiency expectations in 2016/2017 as 1) liquidity deployment, adding of swaps and fee income growth drive revenue growth, 2) only minimal rate hikes are baked into consensus expectations and provide further upside 3) and it could be an emerging capital return story in 2016 as we estimate at least 260bp of excess capital under next year’s CCAR. In addition, shares trade at just 1.1x TBV, which should provide downside support for the shares (as long as credit remains benign). We maintain our 12-month $35 price target, implying 24% upside potential," said Nash.

"Unlike restructuring programs that we have seen at other banks that are dependent on improving revenues, we have high confidence in the ability for ZION to execute on its plan. This is because much of its plan involves transitioning its excess liquidity/asset sensitive position into near-term earnings via MBS purchases and swaps," Nash added. " We see these actions adding $159mn of NII over the next two years if the forward curve is correct or $123mn if rates stay flat. When combined with flat expenses in 2015E/2016E and slight growth in 2017E (in-line with guidance; an achievable bar in our view), we see ZION’s efficiency ratio improving to 61% in 2017E (from 71% in 2015E) if the forward curve is correct or 63% in a more tempered rate scenario, still in-line with ZION’s goal (low 60s). Even if rates do not rise, we still see efficiency improving 500bp, well better than the flat operating leverage that peers would likely produce in such a macro scenario."

For an analyst ratings summary and ratings history on Zions Bancorp click here. For more ratings news on Zions Bancorp click here.

Shares of Zions Bancorp closed at $28.75 yesterday.

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