OZK Stock Study (5-6-24)

Posted by Mark on May 20, 2024 at 07:17 | Last modified: May 6, 2024 10:43

I recently did a stock study on Bank OZK (OZK) with a closing price of $46.75. My previous study is here.

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 10 years, this medium-size company has grown sales and EPS at annualized rates of 14.8% and 12.3%, respectively. Lines are mostly up and parallel except for a sales dip in ’19 and EPS dips in ’18 and ’20.

Over the past decade, PTPM leads peer and industry averages while ranging from 38.2% in ’20 to 68.6% in ’21 with a last-5-year mean of 55.5%. ROE leads peer and industry averages ranging from 10.4% in ’19 (excluding 7.0% outlier in ’20) to 14.6% in ’23 with a last-5-year mean of 11.4%. Debt-to-Capital is much less than peer and industry averages ranging from 9.5% in ’17 to 22.0% in ’14 with a last-5-year mean of 18.7%.

Return on Average Assets (ROAA) has a last-5-year mean of 1.87%. 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:

• YF projects YOY 9.8% and 3.5% for ’24 and ’25, respectively (based on 9 analysts).
• Zacks projects YOY 5.5% and 3.9% for ’24 and ’25, respectively (5 analysts).
• CFRA projects 6.4% YOY and 4.9% per year for ’24 and ’23-’25, respectively (9).
• M* provides a 2-year CAGR of 7.0%.

I am forecasting toward the lower end of the range at 3.0% per year.

With regard to EPS growth:

• MarketWatch projects annualized growth of 3.0% and 8.3% for ’23-’25 and ’23-’26, respectively (based on 10 analysts).
• Nasdaq.com projects 4.6% YOY and 1.2% per year for ’25 and ’24-’26 (7, 7, and 2 analysts for ’24, ’25, and ’26).
• Seeking Alpha projects 4-year annualized growth of 6.0%.
• YF projects YOY 4.4% and 3.8% for ’24 and ’25, respectively (10), along with 5-year annualized growth of 12.0%.
• Zacks projects YOY 2.9% and 4.6% for ’24 and ’25, respectively (7).
• Value Line provides ACE of 0.3% YOY and 2.7% per year for ’24 and ’23-’25, respectively (6).
• CFRA projects 4.8% YOY and 4.3% per year for ’24 and ’23-’25, respectively (9).

Despite being less than either long-term estimate (6.0% and 12.0% for a mean of 9.0%), I don’t consider my forecast overly conservative. It seems high relative to estimates for the next 2-3 years and plenty of room for error exists with only two longer-term estimates that currently exceed it.

I will use ’23 EPS of $5.87/share as the initial value.

My Forecast High P/E is 8.0. Over the past decade, high P/E trends down from 25.1 (’14) to 8.9 (’11) with a last-5-year mean of 11.1. The last-5-year-mean average P/E is 8.8. I am forecasting below the range.

My Forecast Low P/E is 6.0. Over the past decade, low P/E trends down from 18.1 (’14) to 5.2 (’23) with a last-5-year mean of 6.6. I am forecasting near the bottom of the range (only ’23 is lower).

My Low Stock Price Forecast (LSPF) of $35.20 is the default value based on $5.87/share. This is 24.7% less than the previous close and 14.7% greater 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 1.1. Total Annualized Return (TAR) is 7.7%.

PAR (using Forecast Average—not High—P/E) of 5.3% is comparable to the current yield on T-bills. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR 7.7% instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 16 studies done in the past 90 days (8 outliers including my own 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 8.0%, 7.6%, 10.6, 6.5, and 28.5%, respectively. I am lower across the board. No 5-year P/E range is available for comparison.

MS high / low EPS are $8.48 / $5.45 versus my $7.49 / $5.87 (per share). My high EPS is lower due to a lower growth rate. No 5-year consensus estimate is available for comparison.

MS LSPF of $31.00 implies a Forecast Low P/E of 5.7 versus the above-stated 6.5. MS LSPF is 12.5% less than the default $5.45 share * 6.5 = $35.43 resulting in more conservative zoning. MS LSPF is also 11.9% less than mine.

TAR (over 15.0% preferred) is much less than MS 17.2%. Despite the small MS sample, I have forecasted conservatively at every turn. I believe MOS to be robust in the current study.

With regard to valuation, PEG is 1.5 (fairly valued) per my projected P/E. Relative Value [(current P/E) / 5-year-mean average P/E] is slightly undervalued at 0.91.

While ROAA is stellar for this bank, the stock has had quite a run and is now extended from a buy point.

OZK is a BUY under $41/share. With a forecast high price ~$60, my personal TAR criterion will be satisfied ~$30.