Monday, Truist Securities updated its outlook on shares of Bank OZK (NASDAQ: NASDAQ:OZK), raising the price target to $49 from the previous $41, while maintaining a Hold rating on the stock. The adjustment follows Bank OZK's second-quarter results, which prompted the firm to revise its Core EPS estimates for 2024 and 2025 downwards by 3% and 2%, resulting in new forecasts of $6.11 and $6.39 respectively.
The revised estimates are a reflection of a projected decrease in Net Interest Income (NII), due to expectations of slower loan growth through 2025, as well as an anticipated rise in expenses. Despite this, Truist Securities expects to see sequential NII growth until the third quarter of 2025.
This growth is predicted to be followed by some compression as the effects of Federal Reserve rate cuts are forecasted to balance out the growth in earning assets and the repricing of Certificates of Deposit (CDs).
The report noted that credit trends were mixed, with the identification of some special mention and substandard credits. Still, the analyst believes that the management's commentary during the conference call may help ease investor concerns regarding the length of leasing cycles, underwriting structures, and sponsor support.
While Truist Securities anticipates that actual losses will likely remain manageable, it has decided to maintain a Hold rating on Bank OZK shares. This cautionary stance is due to the expected volatility of the stock in relation to stress within the Commercial Real Estate (CRE) asset class and the potential impact of shifting rate expectations. The new price target of $49 is based on a 7.7 times multiple of the bank's estimated earnings per share for 2025.
In other recent news, Bank OZK has reported significant developments in its second quarter of 2024. The bank saw a marked increase in paydowns from $790 million in the first quarter to $1.84 billion in the second quarter. It also detailed an $87 million capital infusion for a San Diego life science project, a strategic move anticipated to bolster growth.
The bank's Commercial and Industrial Banking sector, which constitutes 7% of the funded portfolio, is expected to support the Real Estate Specialties Group balances, with loans ranging from $30 million to $150 million. Bank OZK has also made strategic adjustments in anticipation of potential Federal Reserve rate cuts.
In the realm of expansion, Bank OZK is planning to grow its RESG team from 30 to 50-60 members by the following year. Furthermore, it is open to merger and acquisition opportunities, focusing particularly on acquiring failed bank transactions.
Despite expecting higher charge-offs, the bank's CEO George Gleason emphasized their smart loan structuring and positive trends in the life science sector. Lastly, the bank clarified that it aims to diversify its balance sheet and reduce CRE concentration during the earnings call Q&A.
InvestingPro Insights
Bank OZK (NASDAQ: OZK) has garnered attention with its robust shareholder returns and consistent dividend growth. With a market capitalization of $5.04 billion and a dividend yield of 3.53%, Bank OZK stands out for its high shareholder yield. An InvestingPro Tip highlights the bank's impressive record of raising its dividend for 27 consecutive years, showcasing its commitment to shareholder value. Moreover, the bank's P/E ratio is currently at an attractive 7.52, suggesting that the stock is trading at a low price relative to near-term earnings growth.
Investors may also take note of the bank's strong performance over the last month, with a price total return of 18.03%. This is complemented by the fact that analysts have revised their earnings upwards for the upcoming period, indicating potential optimism in the bank's financial prospects.
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