Bank OZK OZK remains well-poised for top-line growth, supported by steadily improving loans along with its strategic growth initiatives. Moreover, given a solid balance sheet position, the company will likely continue to enhance shareholder value through efficient capital deployment activities.
However, pressure on margins remains a major near-term concern for Bank OZK. Continuously increasing operating expenses and the company’s exposure toward risky loans are other major headwinds.
The Zacks Consensus Estimate for its current-year earnings has been unchanged over the past 30 days. As a result, the company currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of Bank OZK have gained 12.7% compared with a rise of 3.1% of the industry it belongs to.
Looking at fundamentals, though the company’s revenues declined in 2019 and the first half of 2020, the same witnessed a CAGR of 22.8% over the last six years (2014-2019), mainly driven by steady improvement in loans.
Moreover, given a strong balance sheet position, it is expected to continue expanding through acquisitions.
Further, as of Jun 30, 2020, Bank OZK’s total debt of $1.26 billion was lower than its cash and cash equivalents balance of $1.65 billion. Thus, given its robust liquidity position, the company is expected to be able to meet debt obligations in the near term, even if the economic situation worsens.
However, the company’s net interest margin (NIM) has been persistently declining for the past eight years from 5.91% in 2012 to 4.34% in 2019. The downward trend continued in the first half of 2020. Given the continued low interest-rate environment and the Fed signaling no hike in interest rates in the near term, margin pressure is likely to persist in the quarters ahead.
Moreover, Bank OZK’s expenses increased, witnessing a CAGR of 19.3%, over the last six years (2014-2019), with the uptrend persisting in the first six months of 2020. As the company is expanding into newer areas organically as well as through acquisitions, expenses are expected to continue rising, thus, hurting the bottom line to some extent.
Further, its substantial exposure to real estate loans is a cause of concern. As of Jun 30, 2020, its exposure to these loans was 72.6% of total loans. Though the housing and real estate sectors started showing improvement, any deterioration in real estate prices due to the ongoing economic slowdown will likely pose a threat to the company’s financials.
Stocks Worth Considering
Merchants Bancorp MBIN has witnessed an upward earnings estimate revision of 100% for the current year over the past 60 days. Its share price has increased 24% over the past three months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Interactive Brokers IBKR has witnessed a northward earnings estimate revision of 29.7% for the current year over the past 60 days. Its share price has rallied 10.2% over the past three months. It currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Home Bancshares’ HOMB current-year earnings has been revised 20.4% upward over the past 60 days. Its share price has increased 2.4% in the past three months. The company currently carries a Zacks Rank #2.
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Interactive Brokers Group, Inc. (IBKR): Free Stock Analysis Report
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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.