Just like nature, Wall Street has its own cycle of seasons, and with the calendar now in October, companies are gearing up to report their next round of earnings. Given that earnings can dramatically influence a stock's price (over both the short and long term), it is clearly an important part of every investor's schedule. With that in mind, here are a few points to consider as the markets gear up for the next earnings cycle. (For more, check out Strategies For Quarterly Earnings Season.)
1. It's All Relative … to Expectations
Earnings season is when individual investors get a reminder of just how thoroughly the short-termism of Wall Street has infiltrated the markets. A company can report a devastatingly bad quarter and professional investors will cheer so long as it was 2 cents less devastating than commonly expected. Likewise, a company can report a spotless quarter and excellent growth, but coming in a penny or two shy of the published number - or, even worse, the dreaded '"whisper number'" - and tumble.
For the full column, please go to:
http://financialedge.investopedia.com/financial-edge/1010/4-Things-To-Know-About-Earnings-Season.aspx
Showing posts with label earnings. Show all posts
Showing posts with label earnings. Show all posts
Friday, October 8, 2010
Wednesday, October 6, 2010
Monsanto - Hopefully This Is It
The old saw on Wall Street is that bad news come in threes, so maybe Monsanto (NYSE: MON) has finally finished this craptastic cycle of underperformance and reset expectations. Monsanto's fiscal fourth quarter wasn't great, but it could have been worse and investors seem reasonably pleased with the guidance for the next year.
Monsanto reported sales growth of 4% for the quarter, with 7% growth in seeds offsetting 1% growth in the herbicide business. Given all of the angst and hand-wringing about Round-Up, I was a little surprised to see even that much growth there.
That herbicide business did hurt margins, though, as a big jump in seed gross margin (54% vs. 46%) was not enough to power an overall improvement. Instead, company-wide margins fell to 44% from 46%.
Looking to the next year; management forecast a range of EPS for 2.72 to 2.82; below the consensus of 2.82 but apparently good enough for many investors - the stock was indicated up about a point in early trading.
As for the current big worry, the yield of the SmartStax seeds, the jury is still out. Some early results seem to indicate that SmartStax is underperforming the older triple-stacked seed by 4.7 bushels per acre - a big underperformance relative to target of 15 bushel outperformance. Now, the data is still really early (not statistically significant) and there are signs of optimism - I found some data (from Illinois, I think) that showed a double-digit improvement in SmartStax versus the triple-stacked. So, it's not looking great yet, but the story is not over.
Interestingly, for all the talk of a rebound in DuPont's (NYSE: DD) Pioneer business, the data is not all that favorable. I found some data from Purdue that indicated that Monsanto had a nearly 5 bushel-per-acre advantage over Pioneer/DuPont. Now, that is down a lot from the 14+ advantage in 2009, but it is not as though DuPont is outperforming in overall productivity. Still, that is a limited sample and we will not know for a while what the real numbers are for these competitors.
I am absolutely talking my book here, but I still think risk-tolerant investors can buy Monsanto and make a lot of money over the next few years. I know I have complained about Monsanto a lot and suggested that it is a risky idea, but it is also an undervalued stock. I think this stock is worth at least $70 here unless the bottom falls out ... and given the company's incredible R&D assets, I just do not see that happening. So, I do think you can buy it here and prosper long-term ... but be prepared for some frustration and aggravation along the way.
Disclosure - I own shares of Monsanto
Monsanto reported sales growth of 4% for the quarter, with 7% growth in seeds offsetting 1% growth in the herbicide business. Given all of the angst and hand-wringing about Round-Up, I was a little surprised to see even that much growth there.
That herbicide business did hurt margins, though, as a big jump in seed gross margin (54% vs. 46%) was not enough to power an overall improvement. Instead, company-wide margins fell to 44% from 46%.
Looking to the next year; management forecast a range of EPS for 2.72 to 2.82; below the consensus of 2.82 but apparently good enough for many investors - the stock was indicated up about a point in early trading.
As for the current big worry, the yield of the SmartStax seeds, the jury is still out. Some early results seem to indicate that SmartStax is underperforming the older triple-stacked seed by 4.7 bushels per acre - a big underperformance relative to target of 15 bushel outperformance. Now, the data is still really early (not statistically significant) and there are signs of optimism - I found some data (from Illinois, I think) that showed a double-digit improvement in SmartStax versus the triple-stacked. So, it's not looking great yet, but the story is not over.
Interestingly, for all the talk of a rebound in DuPont's (NYSE: DD) Pioneer business, the data is not all that favorable. I found some data from Purdue that indicated that Monsanto had a nearly 5 bushel-per-acre advantage over Pioneer/DuPont. Now, that is down a lot from the 14+ advantage in 2009, but it is not as though DuPont is outperforming in overall productivity. Still, that is a limited sample and we will not know for a while what the real numbers are for these competitors.
I am absolutely talking my book here, but I still think risk-tolerant investors can buy Monsanto and make a lot of money over the next few years. I know I have complained about Monsanto a lot and suggested that it is a risky idea, but it is also an undervalued stock. I think this stock is worth at least $70 here unless the bottom falls out ... and given the company's incredible R&D assets, I just do not see that happening. So, I do think you can buy it here and prosper long-term ... but be prepared for some frustration and aggravation along the way.
Disclosure - I own shares of Monsanto
Wednesday, August 4, 2010
Societe Generale - Less Bad And Getting Better
France's #2 bank, Societe Generale (Nasdaq: SCGLY) (SOGN.PA), continued the trend we have been seeing with most of the global super-banks. That is, sluggish loan recovery (but recovery all the same), a better credit outlook, a lot of noisy moving parts, and a fair bit of conservative guidance from the top kick.
That said, this beaten-up bank arguably did a little better than most relative to the expectations of the investment community.
Revenue rose only 1% on a sequential basis, but that was enough to beat the estimate by about 8%. Earnings were a stronger story - although the growth was just 2% on a sequential basis, the outperformance relative to expectations was on the order of 40%.
Digging into the details, the French retail banking business had a pretty good recovery. Profits were up, loans were up, and credit did not look too bad. The worst part of the picture was, arguably, that business lending tailed off on a sequential basis - not so much a SG-specific problem as an overall warning sign of economic malaise.
Elsewhere, the business was differing shades of "okay, but not great". The International Banking business saw profits rise 10% sequentially, with stronger results in the Czech Republic and less-bad results in Russia. Investment banking was not notably strong, but it was not as bad as widely expected.
As was the case with Santander (NYSE: STD), BNP Paribas, HSBC (NYSE: HBC), and well, frankly *every* bank reporting this cycle, there will be some concern about just how the company made its numbers. Provisioning for bad loans came in lower than expected (by about 200M euros), and the company also saw a nearly 250M benefit from a revaluation of debt holdings. Considering total earnings were just under 1,100M, that is quite a lot of benefit coming from some rather ephemeral sources. By the same token, though, that is how banking operates - the upward revaluation of those loans is no more "false profit" today than the initial downward revisions were false losses in the past.
Societe General has really not lived up to my initial thesis when I bought the stock. I thought I was getting a solid Euro-focused bank with some interesting growth opportunities on the higher-growth periphery of Europe (like Poland, Czech Republic, Russia, and maybe Turkey). It has not worked out so well, though. Why do I still hold it? Well, it is still below what I consider to be "fair value", so I will not just flip it unless a materially better idea comes up.
In retrospect, I probably should have flipped this for Santander back during the Greek meltdown. As it stands now, though, this stock is worth something on the order of $17.25 if you agree that ROE will return to 15% in a five-year timeframe. That is enough to lead me to hold today, but I have to admit it is not a stock I would suggest anybody else needs to own.
Disclosure - I own shares of Societe Generale
That said, this beaten-up bank arguably did a little better than most relative to the expectations of the investment community.
Revenue rose only 1% on a sequential basis, but that was enough to beat the estimate by about 8%. Earnings were a stronger story - although the growth was just 2% on a sequential basis, the outperformance relative to expectations was on the order of 40%.
Digging into the details, the French retail banking business had a pretty good recovery. Profits were up, loans were up, and credit did not look too bad. The worst part of the picture was, arguably, that business lending tailed off on a sequential basis - not so much a SG-specific problem as an overall warning sign of economic malaise.
Elsewhere, the business was differing shades of "okay, but not great". The International Banking business saw profits rise 10% sequentially, with stronger results in the Czech Republic and less-bad results in Russia. Investment banking was not notably strong, but it was not as bad as widely expected.
As was the case with Santander (NYSE: STD), BNP Paribas, HSBC (NYSE: HBC), and well, frankly *every* bank reporting this cycle, there will be some concern about just how the company made its numbers. Provisioning for bad loans came in lower than expected (by about 200M euros), and the company also saw a nearly 250M benefit from a revaluation of debt holdings. Considering total earnings were just under 1,100M, that is quite a lot of benefit coming from some rather ephemeral sources. By the same token, though, that is how banking operates - the upward revaluation of those loans is no more "false profit" today than the initial downward revisions were false losses in the past.
Societe General has really not lived up to my initial thesis when I bought the stock. I thought I was getting a solid Euro-focused bank with some interesting growth opportunities on the higher-growth periphery of Europe (like Poland, Czech Republic, Russia, and maybe Turkey). It has not worked out so well, though. Why do I still hold it? Well, it is still below what I consider to be "fair value", so I will not just flip it unless a materially better idea comes up.
In retrospect, I probably should have flipped this for Santander back during the Greek meltdown. As it stands now, though, this stock is worth something on the order of $17.25 if you agree that ROE will return to 15% in a five-year timeframe. That is enough to lead me to hold today, but I have to admit it is not a stock I would suggest anybody else needs to own.
Disclosure - I own shares of Societe Generale
Friday, July 30, 2010
Quest Software (Insert Monty Python Joke Here)
When I decided to push a sizable chunk of my cash into the market a few months ago, I basically walked right into a buzzsaw (thank you, Monsanto (NYSE: MON)!). One of the stocks I picked up then that *has* worked is Quest Software (Nasdaq: QSFT) and last night's earnings report has me feeling a bit happier than usual going into the weekend.
Revenue in the second quarter rose about 13% to $186M. That is not an eye-popping result, but it was almost 10% better than the average guess on the Street. Quest also produced about 350 basis points of operating margin improvement (non-GAAP), and a four-cent beat on EPS.
Digging a bit into the details, license revenue jumped 25% from last year, and I am glad to see this. License revenue growth has been a bit sluggish of late, and it is hard for me to see how the stock goes higher without a revival in this line-item.
Service revenue rose 6% year over year, while maintenance revenue rose 4%. I would like to see a better performance here, but I am not going to worry about it just yet.
The company's Windows business, its largest segment, was also its best grower. Although the database business did show the same magnitude of growth, at least it is growing again. The company's virtualization business did pretty well this period, but at about 10% of the total revenue base it does not really move the needle yet.
Along with earnings, the company announced the acquisition of Surgient - a company that specializes in the deployment and management of secure cloud infrastructure platforms. Given that this is basically "tools for cloud", it makes sense that Quest would be interested. As the IT world moves more and more towards the cloud approach, Quest is going to need to have tools available if it wants to maintain its growth prospects.
All in all, not much changes with this quarter, other than that I feel a little more comfortable with the "return to growth" scenario that motivated my initial purchase of the shares. The risks here are likewise still the same - that large vendors like Microsoft (Nasdaq: MSFT), IBM (NYSE: IBM), and Oracle (Nasdaq: ORCL) will squeeze Quest out of the market by incorporating more free tools into their products, and/or that others like BMC (NYSE: BMC) and CA (NYSE: CA) will basically just out-compete Quest.
Of course, counter-balancing that is the possibility of Quest getting a "if you can't beat them, buy them" bid.
I am still long Quest and I still think the shares are worth upwards of $26 a share. Please note, though, that my history in software stocks is gruesome - I bought Quest mostly as an experiment in a new way of approaching and analyzing the sector, so we will see how that works out.
Disclosure - I own shares of Monsanto and Quest Software
Revenue in the second quarter rose about 13% to $186M. That is not an eye-popping result, but it was almost 10% better than the average guess on the Street. Quest also produced about 350 basis points of operating margin improvement (non-GAAP), and a four-cent beat on EPS.
Digging a bit into the details, license revenue jumped 25% from last year, and I am glad to see this. License revenue growth has been a bit sluggish of late, and it is hard for me to see how the stock goes higher without a revival in this line-item.
Service revenue rose 6% year over year, while maintenance revenue rose 4%. I would like to see a better performance here, but I am not going to worry about it just yet.
The company's Windows business, its largest segment, was also its best grower. Although the database business did show the same magnitude of growth, at least it is growing again. The company's virtualization business did pretty well this period, but at about 10% of the total revenue base it does not really move the needle yet.
Along with earnings, the company announced the acquisition of Surgient - a company that specializes in the deployment and management of secure cloud infrastructure platforms. Given that this is basically "tools for cloud", it makes sense that Quest would be interested. As the IT world moves more and more towards the cloud approach, Quest is going to need to have tools available if it wants to maintain its growth prospects.
All in all, not much changes with this quarter, other than that I feel a little more comfortable with the "return to growth" scenario that motivated my initial purchase of the shares. The risks here are likewise still the same - that large vendors like Microsoft (Nasdaq: MSFT), IBM (NYSE: IBM), and Oracle (Nasdaq: ORCL) will squeeze Quest out of the market by incorporating more free tools into their products, and/or that others like BMC (NYSE: BMC) and CA (NYSE: CA) will basically just out-compete Quest.
Of course, counter-balancing that is the possibility of Quest getting a "if you can't beat them, buy them" bid.
I am still long Quest and I still think the shares are worth upwards of $26 a share. Please note, though, that my history in software stocks is gruesome - I bought Quest mostly as an experiment in a new way of approaching and analyzing the sector, so we will see how that works out.
Disclosure - I own shares of Monsanto and Quest Software
Thursday, July 22, 2010
BB&T - Good, Bad, Awful All In One
BB&T (NYSE: BBT) put up a quarter for the second quarter that is tricky to figure out. There was good news and bad news, often the same news, and a lot of things to consider.
Revenue rose 6% (sequentially) this quarter, a strong result by this quarter's standards. Net interest income rose more than 3% - better than US Bancorp (NYSE: USB), Wells Fargo (NYSE: WFC), and PNC (NYSE: PNC). Net interest margin was 4.1%, which was likewise quite strong on a comparative basis. Loan growth was quite modest - down just a bit on an average balance basis and up slightly on a period-ending basis.
And for some people, that is all the good news there is.
Most news accounts are going to say that BBT missed earnings by $0.04, but that is not quite true. Strip out security gains and what-not and you get earnings per share more like $0.14 or $0.15 per share - far below that Wall Street guess of $0.34.
Why were earnings so weak? A big part of it was the company's decision to sell $628M in bad loans. These were "troubled assets" (polite speak for craptastic loans gone bad) that the company was looking to sell, but doing so forced them to run the losses through the income statement. On top of that, the higher costs of managing foreclosed property and integrating Colonial added to the expense ratio. Consequently, efficiency and returns on assets and equity were poor.
Loan loss reserves as a percentage of loans were 2.7% - on the low side for similar banks, while charge-offs were 2.5% (which was on the high side). Non-performing loans stayed flat quarter on quarter, as did NPLs as a percentage of loans. That stands in contrast to companies like USB and M&T Bank (NYSE:MTB) where non-performing loans dropped quarter on quarter.
Considering how things look in the economy, I like the fact that BBT management continues to be so conservative. USB management's feelings about the economy are such that they are not releasing reserves yet, and that seems reasonable. So when I see that BBT carries a rather high Tier 1 common ratio, I feel pretty good about it - why stretch your balance sheet and leverage yourself to go out and make mortgage loans when rates are at historic loans? Makes no sense to me.
All in all, I have to lower my target on BBT to $35.50, predicated on ROE going back to 14% over time. That is not an exciting amount of appreciation potential, but it is enough for me when we are talking about a well-run and conservative bank.
If I did not own BBT, what would I buy? JPMorgan (NYSE: JPM), which Ialways already own, also looks very cheap - maybe one of the cheapest domestic banks I know. Wells Fargo also looks appealing, and maybe Bank of America (NYSE: BAC) too, but BAC and JPM are very different businesses than BBT. Among more similar banks, like PNC, Suntrust (NYSE: STI), or Regions (NYSE: RF), I would much rather own BBT.
Disclosure - I own shares of BBT and JPM
Revenue rose 6% (sequentially) this quarter, a strong result by this quarter's standards. Net interest income rose more than 3% - better than US Bancorp (NYSE: USB), Wells Fargo (NYSE: WFC), and PNC (NYSE: PNC). Net interest margin was 4.1%, which was likewise quite strong on a comparative basis. Loan growth was quite modest - down just a bit on an average balance basis and up slightly on a period-ending basis.
And for some people, that is all the good news there is.
Most news accounts are going to say that BBT missed earnings by $0.04, but that is not quite true. Strip out security gains and what-not and you get earnings per share more like $0.14 or $0.15 per share - far below that Wall Street guess of $0.34.
Why were earnings so weak? A big part of it was the company's decision to sell $628M in bad loans. These were "troubled assets" (polite speak for craptastic loans gone bad) that the company was looking to sell, but doing so forced them to run the losses through the income statement. On top of that, the higher costs of managing foreclosed property and integrating Colonial added to the expense ratio. Consequently, efficiency and returns on assets and equity were poor.
Loan loss reserves as a percentage of loans were 2.7% - on the low side for similar banks, while charge-offs were 2.5% (which was on the high side). Non-performing loans stayed flat quarter on quarter, as did NPLs as a percentage of loans. That stands in contrast to companies like USB and M&T Bank (NYSE:MTB) where non-performing loans dropped quarter on quarter.
Considering how things look in the economy, I like the fact that BBT management continues to be so conservative. USB management's feelings about the economy are such that they are not releasing reserves yet, and that seems reasonable. So when I see that BBT carries a rather high Tier 1 common ratio, I feel pretty good about it - why stretch your balance sheet and leverage yourself to go out and make mortgage loans when rates are at historic loans? Makes no sense to me.
All in all, I have to lower my target on BBT to $35.50, predicated on ROE going back to 14% over time. That is not an exciting amount of appreciation potential, but it is enough for me when we are talking about a well-run and conservative bank.
If I did not own BBT, what would I buy? JPMorgan (NYSE: JPM), which I
Disclosure - I own shares of BBT and JPM
Tuesday, July 20, 2010
Whirlpool Whirring
Solid results this morning from appliance-maker Whirlpool (NYSE: WHR).
Overall revenue was up almost 9% to $4.5 billion, slightly beating the average guess on Wall Street. Adjusted earnings, though, came in at $3.09, well ahead of the guess of $2.17 a share, and the company bumped its full-year guidance by $1, or about 12%.
There was good and bad here.
Good:
- Sales to Asia up 43%; sales to Latin America up 24%; unit shipments to Brazil look to be up about 10% this year
- North American sales up 6% and the company pushed guidance to the high end of its prior range.
- Internal profitability and cash flow generation is improving significantly
Not-so-good:
- Sales to Europe were down 6%; consistent with Electrolux, but not good news
- Minimal overall revenue upside guidance (the company is doing well on profits, but overall demand is iffy in North America and weak in Europe).
I find it interesting that Whirlpool is widely under-covered; most of the major brokers do not cover them. That could mean that the company is still slightly below the radar of some institutions. I mean, after all, this is an American manufacturing company and American manufacturing is supposed to be doomed, right?
I like the company's overseas prospects; it is a given to me that Brazil, India, and China are going to continue to develop, and their growing middle classes are going to want the sorts of things that Whirlpool makes. Surely there will be competition (China's Haier is already a major competitor), but Whirlpool can be fourth or fifth in China in ten years and still be doing alright.
I need to do a more robust analysis on this stock. I like the long-term thesis, the valuation seems interesting at first blush, the company is serious about internal efficiency, and the company is doing okay in a pretty tough time for its two largest markets (North America and Europe). All that is at least worth a closer look.
Overall revenue was up almost 9% to $4.5 billion, slightly beating the average guess on Wall Street. Adjusted earnings, though, came in at $3.09, well ahead of the guess of $2.17 a share, and the company bumped its full-year guidance by $1, or about 12%.
There was good and bad here.
Good:
- Sales to Asia up 43%; sales to Latin America up 24%; unit shipments to Brazil look to be up about 10% this year
- North American sales up 6% and the company pushed guidance to the high end of its prior range.
- Internal profitability and cash flow generation is improving significantly
Not-so-good:
- Sales to Europe were down 6%; consistent with Electrolux, but not good news
- Minimal overall revenue upside guidance (the company is doing well on profits, but overall demand is iffy in North America and weak in Europe).
I find it interesting that Whirlpool is widely under-covered; most of the major brokers do not cover them. That could mean that the company is still slightly below the radar of some institutions. I mean, after all, this is an American manufacturing company and American manufacturing is supposed to be doomed, right?
I like the company's overseas prospects; it is a given to me that Brazil, India, and China are going to continue to develop, and their growing middle classes are going to want the sorts of things that Whirlpool makes. Surely there will be competition (China's Haier is already a major competitor), but Whirlpool can be fourth or fifth in China in ten years and still be doing alright.
I need to do a more robust analysis on this stock. I like the long-term thesis, the valuation seems interesting at first blush, the company is serious about internal efficiency, and the company is doing okay in a pretty tough time for its two largest markets (North America and Europe). All that is at least worth a closer look.
Thursday, July 15, 2010
Quick Follow-Up On JPMorgan
Last night I gave a quick preview of JPMorgan's (NYSE: JPM) earnings release, so I thought I would follow up on the actual release this morning.
All in all, it was alright. Better credit was pretty much the entire story behind the earnings beat; both higher-than-expected reserve releases and lower charge-offs. This was not really all that surprising; by taking and keeping those higher reserves in earlier quarters, JPMorgan basically "stored up" some earnings power for later quarters. Had things gone a little differently, and we had seen another credit crunch or dive in the economy, those reserves would have helped JPM keep its head further above water than the competition.
I was a little disappointed with overall revenue performance, but then I expected a stronger quarter than the analysts.
Results for this company are always confusing, but here are some of the highlights:
- Revenue down 8%
- All business lines profitable
- $1.5B (0.36/sh) reduction in loan loss reserves
- $550M (0.14/sh) charge for UK bank bonus tax
- $0.9B (0.22/sh) in securities gains
- Losses in home lending are getting smaller
- Credit quality in Cards is getting better
- Loan loss provision ($3.4B) was down by more than half from Q1
- ROE of 12% (much better than I'd hoped)
- ROA of 0.94%
- Loans down 3%
- I-banking not great (down 3%)
- Fixed-inc trading down 35%, equity trading down 29%
So, now we have a hurdle for the rest of the field. Let's see what Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), Bank of America (NYSE: BAC), and the rest can do...
Disclosure - I own share of JPMorgan
All in all, it was alright. Better credit was pretty much the entire story behind the earnings beat; both higher-than-expected reserve releases and lower charge-offs. This was not really all that surprising; by taking and keeping those higher reserves in earlier quarters, JPMorgan basically "stored up" some earnings power for later quarters. Had things gone a little differently, and we had seen another credit crunch or dive in the economy, those reserves would have helped JPM keep its head further above water than the competition.
I was a little disappointed with overall revenue performance, but then I expected a stronger quarter than the analysts.
Results for this company are always confusing, but here are some of the highlights:
- Revenue down 8%
- All business lines profitable
- $1.5B (0.36/sh) reduction in loan loss reserves
- $550M (0.14/sh) charge for UK bank bonus tax
- $0.9B (0.22/sh) in securities gains
- Losses in home lending are getting smaller
- Credit quality in Cards is getting better
- Loan loss provision ($3.4B) was down by more than half from Q1
- ROE of 12% (much better than I'd hoped)
- ROA of 0.94%
- Loans down 3%
- I-banking not great (down 3%)
- Fixed-inc trading down 35%, equity trading down 29%
So, now we have a hurdle for the rest of the field. Let's see what Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), Bank of America (NYSE: BAC), and the rest can do...
Disclosure - I own share of JPMorgan
Wednesday, July 14, 2010
A Late Look At Bank Of The Ozarks
Bank of the Ozarks (Nasdaq: OZRK) is one of those companies I have followed for a long time, and liked for a long time, but never actually owned in my portfolio. Once again, the company delivered the sort of financial results that keep this one on my watchlist.
Once again, the company reported earnings that were well above the average published estimates. Keep in mind, though, that acquisition accounting makes that comparison almost completely opaque. Still, earnings were up more than 14%, and the annualized ROE of over 15% was a nice result.
Continuing a trend across the banking sector, lending activity was feeble. Loans were down about 5% on an annual basis, though ticked up 1% sequentially. Now, the company claimed that loan activity was weak for lack of demand. Without meaning to assail management's integrity, I would suggest that is part of the reason. I think what management really means (but will not say openly) is that there is a lack of demand among the pool of potential borrowers that constitute acceptable credit risk. Time and time again, I keep seeing surveys suggesting that small business owners cannot get the loans they need to start or expand business ... so, I think the demand is there, but I think banks like Ozarks is being careful about who they underwrite.
Balancing the lending activity, deposits were up 1% annually and down 4% sequentially. Moreover, the character of those deposits have continued to change in the company's favor - the company now has considerably less CDs outstanding and very little in the way of brokered deposits. That has helped keep the cost of funds quite attractive, and the company's net interest margin was a very healthy 5.1% (up from 4.8% last year).
Credit quality also improved - NPLs were down, there were fewer loans past due, and the company set aside less in anticipation of future bad loans. Given that Ozarks never over-indulged in crappy lending to the extent of many other banks, their balance sheet never got so terrible. Still, improvement is improvement...
Ozarks is a good example of what I like to see these days ... though I wish they were increasing their lending more. There is nothing wrong with getting dirt-cheap money from depositors and re-investing that in securities and profiting from the spread, but that game will eventually come to an end when rates begin to rise.
Right now, I am not interested in the stock. I think the stock is worth about $35, but maybe up to $39.50 with some aggressive assumptions. Either way, that is not enough to entice me at today's prices.
Once again, the company reported earnings that were well above the average published estimates. Keep in mind, though, that acquisition accounting makes that comparison almost completely opaque. Still, earnings were up more than 14%, and the annualized ROE of over 15% was a nice result.
Continuing a trend across the banking sector, lending activity was feeble. Loans were down about 5% on an annual basis, though ticked up 1% sequentially. Now, the company claimed that loan activity was weak for lack of demand. Without meaning to assail management's integrity, I would suggest that is part of the reason. I think what management really means (but will not say openly) is that there is a lack of demand among the pool of potential borrowers that constitute acceptable credit risk. Time and time again, I keep seeing surveys suggesting that small business owners cannot get the loans they need to start or expand business ... so, I think the demand is there, but I think banks like Ozarks is being careful about who they underwrite.
Balancing the lending activity, deposits were up 1% annually and down 4% sequentially. Moreover, the character of those deposits have continued to change in the company's favor - the company now has considerably less CDs outstanding and very little in the way of brokered deposits. That has helped keep the cost of funds quite attractive, and the company's net interest margin was a very healthy 5.1% (up from 4.8% last year).
Credit quality also improved - NPLs were down, there were fewer loans past due, and the company set aside less in anticipation of future bad loans. Given that Ozarks never over-indulged in crappy lending to the extent of many other banks, their balance sheet never got so terrible. Still, improvement is improvement...
Ozarks is a good example of what I like to see these days ... though I wish they were increasing their lending more. There is nothing wrong with getting dirt-cheap money from depositors and re-investing that in securities and profiting from the spread, but that game will eventually come to an end when rates begin to rise.
Right now, I am not interested in the stock. I think the stock is worth about $35, but maybe up to $39.50 with some aggressive assumptions. Either way, that is not enough to entice me at today's prices.
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