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Position Close Update: Zions Bancorp (ZION)

New Constructs

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Investment Analyst

Zions Bancorp (ZION: $42/share) – Closing Short Position – ZION +159% vs. S&P +130%

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, with the stock 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

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.

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Disclosure: New Constructs

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

About New Constructs

Our stock rating methodology instantly informs you of the quality of the business and the fairness of the stock’s valuation. We do the diligence on earnings quality and valuation so you don’t have to.

In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a “Buy” rating, Very Unattractive and Unattractive correspond to a “Sell” rating, while Neutral corresponds to a “Hold” rating.

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