Wunderlich Cuts Bank Of The Ozarks Stock Because It's Too Expensive

In separate reports published Thursday, Wunderlich analyst Kevin Reynolds downgraded the ratings on

from Buy to Hold, while raising the price target from $47 to $48. The company's shares have risen by about 26 percent year-to-date. In fact, over the last eight months, the shares have jumped more than 55 percent, versus a 25 percent increase for the Southern banks in the WSI Universe, an increase of about 14 percent in the S&P 500 and the NASDAQ Bank Index rising around 21 percent over the same period. While noting that Bank Of The Ozarks's shares should trade at a premium valuation relative to peers, given the company's "consistent high-performance track record and its outlook for above average growth," analyst Kevin Reynolds believes that the current price reflects "a relatively full valuation." "Approximately 73% of the company's loan portfolio consists of variable rate loans (up from roughly 60% two years ago), while almost 20% of deposits are noninterest bearing. According to OZRK's interest rate sensitivity disclosures in its 10-Q, a +100bps move in rates would boost NII by 1.7% (~$8 million), while a +200bps move would boost NII by 4.0% (~$18 million), yielding incremental EPS of $0.06 (+100bps) and $0.14 (+200bps)," Reynolds wrote. The market expects the FOMC to raise rates in September 2015 as well as "at every other meeting through year-end 2016." Wunderlich has incorporated "a conservative view of the impact of higher rates" over the next two-year period. With this, the DCF model yields a $48 price target.