Bear of the Day: Bank OZK (OZK)

Bank OZK (OZK) is managing in a difficult interest rate environment. This Zacks Rank #5 (Strong Sell) is well-known for its incredible credit discipline.

Bank OZK is a regional bank headquartered in Little Rock, Arkansas. It has operations throughout the US including in Arkansas, Georgia, Florida, North Carolina, Texas, Alabama, South Carolina, California, New York and Mississippi.

The bank is well-known for its condo and apartment lending.

A Third Quarter Miss

On Oct 17, Bank OZK reported its third quarter results and missed on the Zacks Consensus Estimate by $0.02.

Earnings were $0.81 versus the consensus of $0.83. It was the second earnings miss in a row.

Total loans rose 6% to $17.73 billion from $16.73 billion a year ago.

Deposits increased 3.5% to $18.44 billion from $17.82 billion.

Credit quality remained good. For the third quarter, the annualized net charge-off ratios for non-purchased loans were just 0.07%. Excluding purchased loans, the ratio of nonperforming loans to total loans was 0.17%.

Earnings Estimates Cut

No bank can get away from the Fed's interest rate cuts this year. With the Fed poised to cut again in October, and possibly several more times before the first half of 2020, the bank earnings are taking a slide.

4 analysts cut 2019 and 2020 estimates in the last month, with 2 cutting in just the last week.

The 2019 Zacks Consensus Estimate has fallen to $3.32 from $3.36 in the last month. That's earnings growth of just 2.5% over the prior year as Bank OZK made $3.24.

2020 is looking similar.

The 2020 Zacks Consensus has fallen to $3.06 from $3.19 over the past 30 days, an earnings decline of 7.7%.

Shares are Cheap

The bank stocks have under performed in 2019 given all the rate cut challenges. Bank OZK shares are down 5.5% year-to-date.

They're now trading with a forward P/E of just 8.8 and a price-to-book ratio of 0.9. A P/B ratio under 1.0 usually indicates value.

Bank OZK does pay a dividend, currently yielding 3.4%, to reward shareholders for their patience.

Other regional banks are in the same boat in 2019.

Comerica (CMA) pays a dividend of 4.1% but it's also a Zacks Rank #5 (Strong Sell). And WesBanco (WSBC), a West Virginia regional bank, is a Zacks Rank #4 (Sell). It pays a dividend of 3.4%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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