Over the past six months, Frost Bank has been a great trade, beating the S&P 500 by 9.5%. Its stock price has climbed to $162.22, representing a healthy 18% increase. This run-up might have investors contemplating their next move.
Is now the time to buy Frost Bank, 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 Frost Bank Not Exciting?
Despite the momentum, we’re swiping left on Frost Bank for now. Here are three reasons why CFR doesn’t excite us, 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. Frost Bank’s recent performance shows its demand has slowed as its annualized revenue growth of 7% 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
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Frost Bank’s unimpressive 7.5% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
3. TBVPS Projections Show Stormy Skies Ahead
The key to tangible book value per share (TBVPS) growth is a bank’s ability to earn consistent returns on its assets that exceed its funding costs and credit losses.
Over the next 12 months, Consensus estimates call for Frost Bank’s TBVPS to shrink by 7.9% to $64.30, a sour projection.
Final Judgment
Frost Bank’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 2.2× forward P/B (or $162.22 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now. We’d suggest looking at one of our top software and edge computing picks.
Stocks We Would Buy Instead of Frost Bank
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