Monday, April 15, 2013

OZRK Earnings

First, I would like to apologize for my model being out of date on Dropbox- I went to update it after earnings were reported and noticed that my most recent update(s) did not make it onto the UASBIG dropbox nor onto my own personal one and were lost when my computer died the other week. I know I need to work on my FY2012 Statement of Cash Flows, but outside of that, my model is updated and back on our dropbox. I have a current 1-year price target of $49.49, representing a 22.67% upside from the most recent closing price. It'll be more accurate once the full 10Q comes out, but I am still confident in their ability to drive growth in their stock price.

Earnings were released last week. They came in at $0.56 EPS, beating estimates of $0.55. As per usual with this company over the past few years, it is difficult to talk about their achievements in the previous quarter in terms of the ones before it- since they closed Q4 2012 with $2.4 Million in gains from their acquisition of Genala Bank (which amounts to nearly 20% of their final net income available to shareholders), it is difficult when reading the reports to simply compare this quarter to the one before.

In general, OZRK outperformed Q1 2012 with Net Interest Income (after Provisions for Loan Loss, which was neither inappropriately small nor large) growing 1.6% and Non-Interest Income 18.6% (more than offsetting the increases in Non-Interest Expense), leading to an 11% increase in Net Income.

Considering they just completed their first traditional acquisition, the balance sheet looks pretty good- loan growth was perhaps a bit sluggish at just 3.5% over last year and a minor (less than .5%) decrease over last quarter, but cash going towards acquisitions means less cash to go towards loans. Deposits and other liabilities grew more slowly than loans, meaning that a portion of the loan growth over Q1 2012 came from Stockholder's Equity (Liabilities shrank more quickly than loans from Q4 2012 as well)

While it is beyond my skill level to model, the keystone of my thesis with Ozarks is their acquisition strategy. They are aggressive in their pursuit of banks to purchase yet conservative in their pricing, leading to acquisitions that are not only accretive in the long run, but also bring with them initial gains. This certainly may lead to some not entirely exciting quarters, but should be beneficial in the long run. That being said, this past quarter was certainly far from a bad one- especially when you consider that Q1 is generally more challenging than Q4 and their Q4 2012 has significant one-time gains.

As mentioned in my first paragraph, I maintain my hold position with a current price target of $49.49 and will fix the cash flows on the model soon.

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