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A Couple Of Analysts React To Bank Of Ozark's 'Highly Disappointing' Q3

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A Couple Of Analysts React To Bank Of Ozark's 'Highly Disappointing' Q3

Regional bank Bank Ozk (NASDAQ: OZK), formerly known as Bank of the Ozarks, reported Thursday afternoon with a large third-quarter miss that initially sent shares lower by 20 percent.

The Analysts

Morgan Stanley's Ken Zerbe downgraded Bank Ozk from Overweight to Equal-Weight with a price target lowered from $52 to $32.

Wells Fargo's Timur Braziler maintains a Market Perform on Bank Ozk with a price target lowered from $40 to $33.

Morgan Stanley: Change Of Narrative

Bank Ozk's Q3 results were "highly disappointing," with an operating EPS of 64 cents, well below expectations of 92 cents per share, Morgan Stanley's Zerbe said in the downgrade note.

Net interest income also fell short of expectations by $10 million at $222 million due to a weaker net interest margin, which fell 19 basis points from the prior quarter to 4.47 percent, the analyst said.

The core spread fell 19 basis points from the prior quarter and is now down 26 basis points over the past two quarters, Zerbe said. The bank blamed multiple factors for the decline, he said:

  • Lower deferred credit fees.
  • Minimum interest and prepayment exit fees.
  • A smaller increase in LIBOR during the quarter.

Morgan Stanley's downgrade from a bullish stance isn't due to one weak quarter, but rather due to expectations that recent headwinds, especially weak loan growth and NIM concerns, will continue, according to the sell-side firm. A new $32 price target is based on 8.7 times 2020 estimated EPS, which represents a 30-percent discount to the midcap bank peer group at 12.6 times.

Wells Fargo: Unwarranted Fears

Bank Ozk remains a favorite play among short sellers due to the large size of its real estate specialties group loans, which have the potential to create credit and capital volatility even if long-term trends are strong, Wells Fargo's Braziler said in a note.

This theme likely played out during the third quarter, as the company oversaw two charge-offs equivalent to 1.07 percent of average loans, the analyst said. These two loans happens to be the smallest in the company's portfolio, with the largest being a $558-million loan for a Florida condo project. 

Concerns over capital volatility are likely "unwarranted" exiting the third quarter, as the bank continues to have exposure to high-quality projects with low loan-to-value ratios, Braziler said. Nevertheless, the perception of high risk is sufficient enough to hurt Bank Ozk's stock despite expectations for credit to normalize in the fourth quarter into 2019, he said. 

Price Action

Bank Ozk shares were down 0.31 percent at $25.44 at the close Monday. 

Related Links:

Bank Of Ozarks Drops 23%, Analysts Weigh In After Year-Over-Year EPS Decline

Barclays On Bank Ozk: New Name, New Bearish Stance

Latest Ratings for OZK

DateFirmActionFromTo
Aug 2020Morgan StanleyMaintainsEqual-Weight
Jul 2020Piper SandlerMaintainsOverweight
Jun 2020CitigroupDowngradesBuyNeutral

View More Analyst Ratings for OZK
View the Latest Analyst Ratings

 

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