Position Close Update: Zions Bancorp (ZION)

David Trainer  |

Zions Bancorp (ZION) was originally selected as a Danger Zone Idea on 12/6/11. At the time of the initial report, the stock received a Very Unattractive rating. Our short thesis noted the firm’s low return on invested capital (ROIC) and high growth expectations implied by its valuation.

During the nearly 8-year holding period, ZION underperformed as a short position, gaining 159% compared to a 130% gain for the S&P 500.

ZION has steadily improved its ROIC from -3% when we wrote our article, to 8% TTM. We also updated our weighted average cost of capital (WACC) calculation, which reduced ZION’s WACC and lowered the growth expectations implied by its valuation. These factors, combined with a 17% decline in the stock price over the past year, means ZION now trades a more reasonable level. Given the improved fundamentals and valuation, we are closing this short position.

Figure 1: ZION vs. S&P 500 – Price Return – Unsuccessful Short Call

Click to enlarge

Image Source: New Constructs, LLC

Sources: New Constructs, LLC and company filings

Note: Gain/Decline performance analysis excludes transaction costs and dividends.

This article originally published on October 3, 2019.

Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.

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DISCLOSURE: Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

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