On Friday, Piper Sandler, a financial services firm, increased its price target for Bank OZK (NASDAQ:OZK) shares to $63 from $58 while maintaining an Overweight rating. This adjustment reflects updated earnings estimates for the years 2024 and 2025, and the establishment of a 2026 earnings per share (EPS) estimate of $6.90.
The firm's analyst noted that the update comes as Bank OZK provided more forward guidance than usual, indicating expectations of mid to high single-digit loan growth in 2025. Additionally, the bank anticipates an inflection in net interest margin (NIM) in the second half of 2025 and another year of record net interest income (NII), although not on a quarterly basis.
The analysis acknowledged some initial concerns regarding net growth in the second half of 2025, as Bank OZK transitions from Real Estate Specialties Group (RESG) lending to Corporate and Industrial Banking (CIB) and other verticals. However, the bank's positive outlook on these trends has eased these concerns.
Despite potential incremental downside to the NIM due to the handoff from higher-yielding RESG loans to lower-yielding ones, the analyst believes that the current share price, trading at approximately 6.7 times the new 2026 EPS estimate, does not significantly impact the earnings outlook. The firm's position suggests that a 3%-5% variation in earnings is not seen as a critical factor in their assessment.
In other recent news, Bank OZK has reported considerable developments in its financial position. The bank disclosed a significant increase in paydowns from $790 million in the first quarter to $1.84 billion in the second quarter. Additionally, Bank OZK has invested $87 million into a San Diego life science project, which is projected to spur growth.
Piper Sandler has reaffirmed its Overweight rating on Bank OZK, citing the bank's robust credit outcomes and profitability profile. Simultaneously, Truist Securities has raised its price target for Bank OZK from $41 to $49, albeit with revised Core EPS estimates for 2024 and 2025 due to anticipated slower loan growth and increased expenses.
Moreover, Bank OZK is planning to expand its Real Estate Specialties Group team and is open to merger and acquisition opportunities. Despite expecting higher charge-offs, the bank's CEO George Gleason emphasized their smart loan structuring and positive trends in the life science sector.
Lastly, the bank discussed its strategy to diversify its balance sheet and reduce CRE concentration during the earnings call Q&A.
InvestingPro Insights
Bank OZK's financial metrics and recent performance align well with Piper Sandler's optimistic outlook. According to InvestingPro data, the bank's P/E ratio stands at a modest 7.75, indicating potential undervaluation relative to its earnings. This is further supported by an InvestingPro Tip highlighting that OZK is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.57 for the last twelve months as of Q2 2024.
The bank's strong dividend history is noteworthy, with an InvestingPro Tip revealing that OZK has raised its dividend for 28 consecutive years. This commitment to shareholder returns is reflected in the current dividend yield of 3.51% and a robust dividend growth rate of 17.14% over the last twelve months.
OZK's financial health is further evidenced by its revenue growth of 11.98% over the last twelve months and an impressive operating income margin of 63.05%. These figures support the bank's ability to navigate the transition in lending focus discussed in the article.
For investors seeking more comprehensive analysis, InvestingPro offers 7 additional tips for Bank OZK, providing deeper insights into the company's financial position and market performance.
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