Cullen/Frost Stock Up Nearly 5% in 6 Months: Is It Worth Buying Now?

Shares of Cullen/Frost Bankers, Inc. CFR have risen 4.7% in the past six months, against the industry’s decline of 1.7%. The S&P 500 Index has gained 1.3% in the same period.

If we compare the company’s price performance with its peers, Texas Capital Bancshares, Inc. TCBI and First Horizon Corporation FHN, it appears that while the CFR stock has underperformed Texas Capital, it has outperformed First Horizon during the same period.

TCBI stock has risen 8.5%, while the FHN stock has lost 4.1% during the past six months.

Six Months Price Performance

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Let us assess whether the recent rise in CFR stock still leaves room for further upside. To determine this, it is important to closely examine the company’s underlying fundamentals and future growth prospects.

What’s Supporting the CFR Stock?

Diversified Revenue Base to Aid Growth: The company has been witnessing steady revenue growth, supported by a balanced mix of interest and fee-based income streams. Over the 2020–2025 period, total revenues recorded a compound annual growth rate (CAGR) of 9.9%. Net interest income (NII) has been the key contributor to revenue growth, registering a CAGR of 12.2% during the same period, supported by solid loan growth. In 2025, NII accounted for nearly 77.6% of total revenues. The ongoing branch expansion efforts, coupled with the Fed rate cuts in 2025 and expectations for one additional cut in 2026, are likely to further support NII growth, with management projecting a 3–5% year-over-year increase in 2026.

Revenue Composition in 2025

Image Source: Cullen/Frost Bankers, Inc.

At the same time, non-interest income provides an additional revenue stream, expanding at a CAGR of 1.4% between 2020 and 2025. The company expects the metric to increase 4–5% in 2026, supported by continued growth in trust and investment management fees, insurance commissions and deposit service charges. Together, these diversified income streams are expected to sustain revenue growth and support long-term profitability.

Branch Expansion to Drive Organic Growth: Over the past several years, Cullen/Frost has focused on expanding its branch network to strengthen its presence across key Texas markets and capitalize on growth opportunities. In 2018, the company launched a statewide branch expansion strategy targeting major metropolitan areas such as Houston, Dallas and Austin to boost market share, deposits and customer relationships. Building on this strategy, the bank completed a 25-branch expansion in Houston and began a 28-branch rollout in Dallas in 2021. Continuing these efforts, the company opened three additional financial centers in the fourth quarter of 2025, two in the Austin region and one in Dallas. Earlier, in June 2023, management announced plans to double the number of financial centers in the Austin region by 2026 to further strengthen its footprint in the market.

These expansion initiatives have already contributed meaningfully to growth. As of Dec. 31, 2025, loans and deposits generated from expansion markets totaled roughly $2.4 billion and $3 billion, respectively, supported by a 51% increase in branches since 2018. With plans to open another 12–15 branches in 2026, management expects average loans to increase 5–7% and average deposits to rise 2–3% in 2026, supporting long-term balance-sheet growth in the pro-business Texas market.

Deposits & Loan Growth Trend

Image Source: Cullen/Frost Bankers, Inc.

Technology Partnerships to Strengthen Digital Capabilities: The company has been enhancing its digital banking infrastructure through strategic partnerships aimed at improving customer experience and expanding product offerings. In June 2024, its banking, investments and insurance subsidiary, Frost Bank (“Frost”), partnered with Finzly to strengthen its real-time payments infrastructure. Through this collaboration, the bank integrated the FedNow and RTP Network instant payment systems, allowing businesses and consumers to move money in real time through a single API-based platform.

Earlier in 2021, the bank collaborated with Infosys to build a technology-driven mortgage lending platform, allowing Frost to re-enter the mortgage market with a fully digital origination and servicing process. In the same year, CFR expanded its partnership with Blend Labs to enhance its digital consumer banking ecosystem, enabling online loan applications, deposit account openings and streamlined customer onboarding. Such partnerships support the company’s digital transformation strategy, improving operational efficiency and enhancing customer experience.

Impressive Capital Distribution Activities: The company follows a disciplined capital distribution strategy. In May 2025, Cullen/Frost raised its quarterly dividend by 5.3% to $1 per share, reflecting consistent annual dividend growth. The company has increased its dividend five times over the past five years, with a payout ratio of 40% and a current dividend yield of 3.03%.

Dividend Yield

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In addition to dividends, the company actively returns capital through share repurchases. On Jan. 29, 2026, the board approved a new share repurchase program authorizing up to $300 million of common stock purchases over a one-year period, expiring on Jan. 27, 2027. Given its strong earnings and favorable debt-to-equity ratio, CFR’s capital distribution activities appear sustainable over the long term.

What’s Hurting CFR’s Growth

Elevated Expense Base: Over the last five years (2020–2025), the company’s non-interest expenses expanded at a CAGR of 10.9%. The rise was primarily driven by higher salaries and employee benefits, technology investments, furniture and equipment costs, and other operational expenses. Going forward, expenses are likely to remain elevated due to continued branch expansion and technology initiatives, with non-interest expenses projected to rise 5–6% in 2026 from the 2025 reported level.

Concentrated Commercial Loan Exposure: The majority of Cullen/Frost’s loan portfolio comprises commercial loans, including commercial and industrial as well as commercial real estate loans. As of Dec. 31, 2025, commercial loans represented nearly 76% of total loans. The rapidly changing macroeconomic environment could strain commercial lending, and an economic downturn may impact asset quality in this loan segment. The lack of diversification in the loan portfolio could pose operational and financial risks if market conditions deteriorate.

Loan Composition in 2025

Image Source: Cullen/Frost Bankers, Inc.

CFR's Earnings Estimates and Valuation Analysis

The Zacks Consensus Estimate for CFR’s 2026 and 2027 earnings indicates a 2.7% and 3.5% rise, respectively. Over the past month, the earnings estimates for 2026 and 2027 have been revised upward.

Estimates Revision Trend

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In terms of valuation, CFR stock appears expensive relative to the industry. The company is currently trading at a 12-month trailing price-to-earnings (P/E) of 12.86X, which is higher than the industry’s 11.81X.

Price-to-Earnings F12 M

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Meanwhile, Texas Capital holds a forward 12-month P/E ratio of 11.94, while First Horizon’s P/E ratio stands at 10.01.

Should You Invest in CFR Stock Now?

While elevated operating expenses, concentrated commercial loan exposure, and a slightly premium valuation warrant some caution in the near term, these risks appear manageable given Cullen/Frost’s resilient balance sheet and steady earnings outlook.

The company’s consistent loan and deposit growth, diversified revenue streams, and favorable earnings estimate revisions indicate a bank that is performing well in the changing interest rate environment. Ongoing branch expansions, strategic digital initiatives and disciplined capital management further strengthen CFR’s long-term growth prospects.

Overall, CFR stands out as a compelling choice for investors seeking exposure to a well-managed, growth-oriented bank with improving fundamentals and shareholder-friendly policies.

CFR currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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