Frost Bank has had an impressive run over the past six months. While the S&P 500 has been flat, the stock has returned 5.4% and now trades at $135.04. This was partly due to its solid quarterly results, and the 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? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Frost Bank Not Exciting?
We’re happy investors have made money, but we're swiping left on Frost Bank for now. Here are three reasons we avoid CFR and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within financials, a stretched historical view may miss recent interest rate changes, market returns, and industry trends. Frost Bank’s recent performance shows its demand has slowed as its annualized revenue growth of 6.1% 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, 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 EPS grew at a weak 2.2% compounded annual growth rate over the last two years, lower than its 6.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis 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 4.9% to $66.56, a sour projection.
Final Judgment
Frost Bank isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 1.8× forward P/B (or $135.04 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. Let us point you toward one of Charlie Munger’s all-time favorite businesses.
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