OZK BankOZK’s business restructuring and branch consolidation efforts are expected to continue to support growth. Additionally, decent loan application will likely help sales in a low interest rate environment.
Zacks’ consensus estimate for the company’s current year earnings has been revised up slightly over the past 60 days. This shows that analysts are optimistic about OZK’s earnings growth potential. Thus, the company currently holds a Zacks Rank # 2 (Buy).
Over the past year, Bank OZK shares have gained 48.5%, slightly outperforming the industrygrowth of 47.7%.
Image source: Zacks Investment Research
Looking at fundamentals, Bank OZK’s revenue has seen a compound annual growth rate (CAGR) of 15.3% over the past six years (2015-2020) with the uptrend continuing into the first nine. months of 2021. The increase was mainly due to the regularity of growth loans.
Thanks to its expansion strategy, the company was able to increase its deposit balances. Over the past six years (2015-2020), deposits have experienced a CAGR of 21.9%. Of the total deposits, 22.8% included non-interest bearing deposits as of September 30, 2021.
In addition, Bank OZK has a strong balance sheet. As of September 30, 2021, the company had total debt of $ 1.22 billion and cash and cash equivalents of $ 1.78 billion. So, given a strong liquidity position and decent earnings strength, it should continue to honor its short-term debt obligations even as the economic situation worsens.
The change in the operational context in 2020 due to the uncertainty induced by the coronavirus has led banks to realign activities to customer needs, with more emphasis on digitization. Thus, the OZK Bank evaluated its network of branches. As part of that effort, the company pulled out of Alabama and South Carolina and closed three branches in Arkansas and one in Florida. In the third quarter of 2021, it closed three branches – two in Georgia and the only depository branch in New York.
The company’s capital deployment activities appear impressive. It has steadily increased its quarterly dividends. Last October, OZK increased its dividend for the 45th consecutive quarter. Given its strong capital position as well as lower debt and dividend payout ratios than its peers, Bank OZK will likely be able to maintain efficient capital deployments, thus continuing to improve value for shareholders.
However, the company’s net interest margin remains under pressure due to the low interest rate environment. While the NIM rose in the first nine months of 2021, it also experienced a downtrend before that (from 5.91 in 2012 to 3.81% in 2020). In addition, the continuous increase in expenses (mainly due to an increase in salaries and social charges) and the significant exposure of the company to mortgage loans (77.4% of total loans as of September 30, 2021) we raise concerns about its growth prospects.
Other actions to consider
Some other top ranked stocks from the same space are Bancorp Merchants MBIN, Community Banking System, Inc. CBU and Fulton Financial FULL. While MBIN currently sports a Zacks # 1 (strong buy) rank, Community Bank System and Fulton Financial carry a Zacks rank of 2. You can see The full list of today’s Zacks # 1 Rank stocks here.
Zacks’ consensus estimate for Merchants Bancorp’s earnings for the current year has been revised up 9.5% in the past 60 days. MBIN shares have risen 74.7% in the past year.
Profit estimates for CBU have remained unchanged for 2021 for the past 60 days. Over the past year, shares of Community Bank System have risen 20.6%.
Fulton Financial has not recorded any changes in its earnings estimates for 2021 in the past 60 days. The stock has climbed 37.1% in the past year.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.