Friday, December 21, 2018

South State Bank Should Be Near The End Of A Painful Reset

In a poor year for bank stocks, South State (SSB) stands out as an especially weak name, particularly since midyear as successive quarterly misses have led to double-digit downward revisions in earnings expectations for 2019 and 2020. Although South State had advised investors and analysts that there would be an adjustment process as it shifted the mix of loans and funding in its Park Sterling acquisition, the process has led to weaker than expected revenues, margins, and loan growth.

I significantly underestimated just how disruptive this transition would be to South State’s reported earnings, and the shift in sentiment away from banks due to rate and recession worries certainly made a tough situation worse. With South State highly likely to continue with M&A in the future, the challenges with the Park Sterling integration raise valid questions about how tumultuous future earnings may be after other buy-and-restructure deals. I do believe that the current share price undervalues a well-capitalized bank with strong share in some attractive growth markets, but between weak sector sentiment and company-specific investor concerns, it will take some time for this stock to claw its way back.

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South State Bank Should Be Near The End Of A Painful Reset

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