OZK Stock Study (8-1-23)
Posted by Mark on October 11, 2023 at 06:47 | Last modified: July 31, 2023 20:26I recently did a stock study on Bank OZK (OZK) with a closing price of $43.73.
Value Line writes:
> Bank OZK (formerly Bank of the Ozarks) is a bank holding company.
> The company owns an Arkansas state chartered subsidiary bank, Bank
> of the Ozarks, that conducts operations through 240 offices. Bank
> OZK provides a range of retail and commercial banking services.
> Deposit services includes: checking, savings, money market, time
> deposit, and individual retirement accounts. Loan services include:
> various types of real estate, consumer, commercial, industrial and
> agricultural loans, and various leasing services. The company also
> provides mortgage lending; treasury management services for
> businesses, individuals and non-profit and governmental entities
> including: wholesale lock-box services; remote deposit capture
> services; trust and wealth management services for businesses,
> individuals and non-profit and governmental entities; real estate
> appraisals; ATMs; telephone banking; online and mobile banking
> services; debit cards, gift cards, and safe deposit boxes.
Over the past decade, this medium-size company has grown sales and EPS at annualized rates of 17.7% and 13.3%, respectively. Lines are mostly up and parallel except for a sales dip in ’19 and EPS dips in ’18 and ’20. PTPM has been above peer and industry averages while going from 49.2% in ’13 to 57.8% in ’22 with a last-5-year mean of 55.6%.
Also over the past decade, ROE leads peer and industry averages going from 14.6% in ’13 to 12.7% in ’22 with a last-5-year mean of 10.8%. Debt-to-Capital is much less than peer and industry averages generally trending down from 35.6% in ’13 to 18.7% in ’22 with a last-5-year mean of 16.8%.
Return on Average Assets (ROAA) has a last-5-year mean of 1.82%. Aside from 1.15% in ’20 (COVID-19), the lowest ROAA in the last 10 years is 1.85% in ’19. That is impressive!
Value Line gives a B+ grade for Financial Strength.
With regard to sales growth:
- CNN Business projects 15.4% YOY and 7.4% per year for ’23 and ’22-’24 (based on 8 analysts).
- YF projects YOY growth of 31.3% and 3.8% for ’23 and ’24, respectively (8 analysts).
- Zacks projects YOY 21.2% and 0.3% for ’23 and ’24, respectively (6).
- CFRA projects 22.3% YOY and 11.3% per year for ’23 and ’22-’24, respectively (8).
- M* provides a 2-year CAGR of 9.9%.
I am forecasting toward the lower end of the range at 7.0% per year.
With regard to EPS growth:
- CNN Business reports ACE of 22.7% YOY and 10.1% per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with 5-year annualized growth of 6.0%.
- MarketWatch projects annualized growth of 11.5% and 10.5% for ’22-’24 and ’22-’25, respectively (9 analysts).
- Nasdaq.com projects contraction of 1.8% YOY and 1.5% per year for ’24 and ’23-’25 (7, 7, and 2 analysts).
- Seeking Alpha projects 4-year annualized growth of 6.0%.
- YF projects YOY 25.6% growth and 1.4% contraction for ’23 and ’24, respectively (9), along with 12.0% annualized growth for the next five years.
- Zacks projects YOY 25.8% growth and 1.8% contraction for ’23 and ’24, respectively (7).
- Value Line provides ACE of 24.9% growth YOY and 8.7% growth for ’23 and 2022 – 2024/2025, respectively (6).
- CFRA projects growth of 26.4% YOY and 12.3% per year for ’23 and ’22-’24, respectively (7).
My 5.0% forecast is below the long-term-estimate range (mean of three: 8.0%). I will use ’22 EPS of $4.54/share as the initial value rather than 2023 Q1 EPS of $4.93 (annualized).
My Forecast High P/E is 10.0. Over the past decade, high P/E has trended down from 24.1 in ’13 to 11.3 in ’22 with a last-5-year mean of 12.6. I am forecasting below the entire range and just above the last-5-year-mean average P/E of 9.7.
My Forecast Low P/E is 6.0. Over the past decade, low P/E has fallen from 13.5 in ’13 to 7.7 in ’22 with a last-5-year mean of 6.8. I am forecasting below the entire range.
My Low Stock Price Forecast (LSPF) of $27.20 is the default value based on $4.54/share. This is 37.8% less than the previous close and 11.4% less than the 52-week low.
Over the past decade, Payout Ratio ranges from 21.2% in ’17 to 47.7% (upside outlier) in ’20 with a last-5-year mean (excluding the outlier) of 26.5%. I am forecasting below the range at 21.0%.
These inputs land OZK in the HOLD zone with a U/D ratio of 0.9. Total Annualized Return (TAR) is 7.9%.
PAR (using Forecast Average—not High—P/E) is 3.8%, which is less than the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead.
To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 90 studies done in the past 90 days (my study and 17 other outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio are 7.0%, 7.1%, 14.8, 10.2, and 26.5%, respectively. I am equal on projected sales growth and lower on the others.
MS high / low EPS is $6.46 / $3.41 vs. my $5.79 / $4.54 (per share). My high EPS is lower due to a lower growth rate. I am perplexed by the $3.41. ’22 and ’21 annual EPS are both higher. I have to go back to Q3 2020 to find a lower quarterly [annualized] EPS number. I almost think this to be unreasonably low.
MS LSPF of $28.70 implies a Forecast Low P/E of 8.4 vs. the above-stated 10.2. MS LSPF is 17.5% less than the default $3.41/share * 10.2 = $34.78, which results in more conservative zoning. MS LSPF remains 5.5% greater than mine.
MOS backing the current study seems robust. My 7.9% is much lower than MS TAR of 20.9%.
I track a couple different valuation metrics. PEG is 1.7 based on my forward P/E (slightly overvalued) while Relative Value [(current P/E) / 5-year-mean average P/E] is slightly undervalued at 0.92 (M*).
I would look to re-evaluate OZK under $34/share.
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