Why Zions Bancorporation Rallied This Morning

Does this analyst make a good case? Or is it just more noise from Wall Street?

Feb 14, 2014 at 10:13AM

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Zions Bancorporation (NASDAQ:ZION) climbed about 2% on Friday after Goldman Sachs upgraded the regional bank from sell to neutral.

So what: Along with the upgrade, analyst Ryan Nash raised his price target to $33 (from $29), representing about 9% worth of upside to yesterday's close. While Nash isn't exactly thrilled with Zions' appreciation prospects, he believes the downside is becoming more limited given the bank's steadily improving fundamentals.

Now what: Goldman offered a few reasons Zions' risk/reward trade-off is getting better. "1) [I]ts story is becoming cleaner (CDO sales, TRS termination, capital clarity), 2) its outlook for loan growth is improving and 3) leverage to higher rates should support shares; we had previously been less optimistic on these themes," noted Nash.

When you couple those improving prospects with the stock's industry-lagging price-to-book ratio, Zions might be worth buying at this point.

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Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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