Zions Bank Rises From the Depths

No stock in the S&P 500 is performing better so far this year than Zions Bancorporation (ZION), which is up 77%, or almost $16 a share.

Not a bad turnaround for a company that was one of 2009's worst-performing stocks in broad market indexes of the largest U.S. companies and whose future was uncertain. The Salt Lake City, Utah-based lender has crawled back from a stock price 12 months ago that hovered in the $6 range to close at $22.82 Tuesday, as it increases shareholder value following the residential and commercial real estate meltdown.

Ed Timmons, a senior analyst with Sterne Agee, offers a simple explanation: "Just goes to show that what goes down must go up."

Real Estate Rebound

Twelve months ago, it wasn't clear that the bank, with operations primarily in the Southwest, was going to be a survivor. Zions took on $1.4 billion in federal Troubled Asset Relief Program (TARP) funds because it was buried in bad residential and commercial loans. Unlike some other financial institutions that took bailout funds, however, Zions hasn't diluted its shares by selling more stock to raise capital, Timmons says. This has helped to preserve the value of its shares, although Zions hasn't paid back the money.

Zions has approximately $53.3 billion in total assets and operates about 500 banking offices in 10 Western and Southwestern states: Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah and Washington. Real estate markets in these areas fell harder and quicker than the rest of the country but have been on a steady recovery, helping the bank's bottom line. Plus, Zions has spread its exposure across a variety of lending areas, not just commercial real estate.

James Abbott, director of investor relations at Zions, attributes its rebound to the "shifting winds of the economy" and efforts to maintain value for shareholders. "We're definitely feeling more comfortable today than we were six or eight months ago," he says.

A Buy -- for the Long Term

For the short term, Zions continues to lose money each quarter, but both the bank and analysts expect it to make a profit in late 2011. Zions has said it intends to pay back the bailout money in the next year or two, but Timmons doesn't see any scenario in which that can happen, given the bank's losses, without raising additional capital.

If investors are betting n the stock's rise continuing, they'd better think long-term. Analysts see the price now near the top of its target range in the near term. Further out, they say, it has potential to rise to the mid- to upper-$20s.

"Given the company's risk and exposures, there are still lots of headwinds," says Timmons, who doesn't own shares in Zions. "It's unlikely you will make money in the next six months if you buy this stock today."

Harris Simmons, chairman, president and CEO of Zions, owns about 1.3 million shares of the company. He has worked at Zions, which traces its roots to Brigham Young and the Church of Jesus Christ of Latter-day Saints, for the last 25 years.