Barclays On Bank Ozk: New Name, New Bearish Stance

Bank of the Ozarks' name change to Bank Ozk OZK was supposed to signal the company's evolution from a regional Arkansas community bank to a much larger entity with a national lending business. That's not the case, as the bank's growth hasn't played out as hoped, according to Barclays. 

The Analyst

Barclays' Matthew Keating downgraded Bank Ozk from Overweight to Underweight with a price target slashed from $53 to $38.

The Thesis

Barclays' bullish case for the regional bank was established in January and based on expectations for above-average growth, an impressive profit-generating business and improvements in credit metrics, Keating said in the downgrade note. (See the analyst's track record here.) 

Since the start of the year, the bank has seen rising competition for construction and development loans while its overall loan growth decelerated, the analyst said. 

Bank Ozk said in April it expects to see more non-purchased loan growth in 2018 compared to 2017, followed by even stronger growth in 2019, Keaing said. The thesis is now called into question after the company showed increased paydown activity and communicated "limited visibility" into loan growth trends for the back half of 2018, he said. 

In Bank Ozk's second-quarter conference call, the company said it hopes to benefit from lower deposit beta in the back half of 2018 from a change in its deposit strategy, Keating said. The company's already coverage-high deposit beta will be dictated more by broader banking industry factors than company-specific changes, he said. 

Investors should avoid the temptation to buy Bank Ozk's stock at a valuation discount of 1.8 times tangible book value versus the peer average of 2.2 times, the analyst said. The company's fundamentals are likely to remain pressured until the construction sector shows signs of fundamental improvements, in the analyst's view. 

Price Action

Bank Ozk shares were trading down 2.43 percent to $39.70 at the time of publication Monday. 

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