Bank OZK Beats, But Investors Are Focusing On Any Sign Of Credit Issues

I’ve been cautious on Bank OZK (OZK) for a while now, and I don’t feel as though I’ve missed much – the shares are down about 10% since my January 2019 article on the stock and up less than 2% since my last article – lagging the broader bank sector by about 10% and 3%, respectively, to say nothing of banks I’ve preferred like First Horizon (FHN). I believe there are multiple issues weighing on Bank OZK – a slowing non-residential construction market, growing competition from nontraditional lenders, adverse asset/liability betas, and concern over credit quality.

I’m more and more interested in the valuation opportunity, though, and the risk-adjusted return potential. Credit losses are certainly an ongoing risk, and given Bank OZK’s willingness to write larger loans, the headline risk is not small. Still, the bank should be able to more than handle some losses, and I think a lot of the rate/NIM risk is already in place. If mid-single-digit core earnings growth is still a valid long-term expectation, I believe these shares are starting to show some real appeal.

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Bank OZK Beats, But Investors Are Focusing On Any Sign Of Credit Issues