Wednesday, January 23, 2019

Bank OZK Looking For A Little Stability In 2019

It’s been a wild ride for Bank OZK (OZK) (formerly Bank of the Ozarks), as this CRE and construction lending specialist has seen two quarters were almost everything went wrong (the third quarter) and then almost everything went right (the fourth quarter). The exceptionally strong fourth quarter results, and the quick about-face on the Street the sent the shares shooting higher, has largely closed the gap created by the third quarter sell-off, but the shares have still significantly lagged the major regional bank indices over the last six and 12 months.

Looking into 2019, Bank OZK’s heavy exposure to riskier lending (construction and commercial real estate, focused on NYC and Miami) and higher deposit beta will likely lead to higher volatility, but management has taken noticeable steps to diversify the portfolio and improve its deposit-gathering. I do still have worries about Bank OZK’s overweighted exposure to some overheated real estate markets, but in the low $30’s, it’s hard not to like the valuation for long-term holders provided there isn’t a bad recession on the way.

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Bank OZK Looking For A Little Stability In 2019

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