Bancolombia S.A. - Growth & Income

With BRIC countries all the rage these days, investors often overlook other strong emerging markets. Through free market reforms and a stable political climate, Colombia has been one of Latin America's strongest economies over the last several years.

Bancolombia (CIB) is Colombia's largest bank and stands to benefit from continued economic growth. The company recently reported a strong third quarter marked by solid loan demand and improving credit trends.

Despite a nice run up in the share price, valuation still remains reasonable for this Zacks #2 Rank (Buy) stock.

Third Quarter Results

The company reported third quarter earnings per share of $1.06, beating the Zacks Consensus Estimate by 17 cents. It was a 17% increase year-over-year.

Net loans grew 7.8% compared to the third quarter of 2009, driven by an 11% increase in mortgage loans. This led to a 1.2% increase in net interest income. The net interest margin, essentially the spread between the interest it received from loans and what it paid out on deposits, declined from 6.3% to 6.2%, however.

Credit quality was much better, as charge-offs declined 27% from the same quarter in 2009. Net provisions for loan losses decline 18% over the same period.

Fee income increased 5.8% due to higher income from credit cards and banking services.

Outlook

Estimates have been rising since Bancolombia reported third quarter results on November 3.

The Zacks Consensus Estimate for 2010 is $3.66, representing a 17% increase year-over-year. The 2011 estimate is currently $4.42, corresponding to 21% annual growth.

Fundamentals

Shares of Bancolombia are up over 50% since early May.

Despite the huge run up, shares don't appear to be grossly overvalued. The stock trades at 18.1x forward estimates, a premium to the industry average of 13.7x, but within reason given the company's above-average growth rates.

Its price to book ratio of 3.1 is also above the peer group average, which is 1.4. However, its return on equity is a solid 19.5%, well above the industry average of 10.8%. This helps justify the higher book value multiple.

Bancolombia also offers a dividend yield of 2.0%.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

 
BANCOLOMBIA-ADR (CIB): Free Stock Analysis Report
 
Zacks Investment Research