On Friday, Stephens updated its outlook on Origin Bancorp (NYSE: NYSE:OBK) shares, increasing the price target to $38.00 from the previous target of $37.00. The firm has maintained an Overweight rating on the stock, acknowledging the company's effective cost management and growth in core loan yields as key factors.
Despite a miss in net interest income (NII) and net interest margin (NIM) for the third quarter of 2024 due to higher deposit costs, Stephens remains optimistic about the bank's future profitability.
The bank's third-quarter performance was notable for its strategic cost controls and expansion in core loan yield. However, the rise in deposit costs resulted in a shortfall in NII and NIM for the quarter. This has led to an adjustment in earnings per share (EPS) expectations, taking into account potential challenges following the Federal Reserve's recent 50 basis points reduction in the federal funds rate.
The bank's profitability is anticipated to reach its lowest point in the fourth quarter of 2024, with a return on assets (ROA) of approximately 65 basis points.
Looking ahead, Stephens anticipates a recovery in profitability for Origin Bancorp. The bank's management is expected to outline a strategy to achieve profitability comparable to its peers in the medium term and to reach top-tier profitability over a longer horizon during the earnings call in January. This positive outlook is supported by the current valuation of the stock, which is trading at approximately one times its tangible book value (TBV).
The revised stock price target of $38.00 is based on a 13 times multiple of the projected EPS of $2.96 for the year 2026, combined with 1.1 times the firm's forecast for twelve-month TBV per share (TBVPS). Stephens' stance is influenced by the stock's recent underperformance compared to its peers, which presents a potential opportunity for investors.
In other recent news, Origin Bancorp reported significant growth during its recent third-quarter earnings call, despite facing challenges in achieving top-tier profitability. The company's assets have grown from $4.2 billion at its public inception in 2018 to nearly $10 billion.
President Lance Hall reported a 2.3% increase in total deposits and a rise in non-interest-bearing deposits by 1.5%. The company's loan portfolio health has shown improvement, with a decrease in past dues to 0.49% and nonperforming loans to 0.81%.
The Texas markets have shown substantial growth with $241 million in deposits and $154 million in loans. However, the company has seen a slight decrease in net interest margin to 3.18%, and non-interest income for Q3 was $16.0 million, showing a decline due to seasonal trends. Diluted earnings per share for Q3 were $0.60.
In light of these recent developments, Origin Bancorp is strategically focusing on improving profitability by the end of 2024, with a detailed plan set to be unveiled in January. The company remains optimistic about its growth potential and is making adjustments to its model to include anticipated Federal Reserve rate cuts.
InvestingPro Insights
Recent data from InvestingPro adds depth to Stephens' analysis of Origin Bancorp (NYSE: OBK). The company's P/E ratio of 11.81 and price-to-book ratio of 0.88 suggest that the stock may be undervalued, aligning with Stephens' view of potential opportunity due to recent underperformance.
InvestingPro Tips highlight that Origin Bancorp has raised its dividend for 6 consecutive years, indicating a commitment to shareholder returns. This could be particularly attractive to investors given the current dividend yield of 1.91%. However, it is worth noting that the company suffers from weak gross profit margins, which may explain the focus on cost management mentioned in the article.
The data also shows a revenue decline of 3.62% over the last twelve months, which contextualizes the challenges in net interest income discussed by Stephens. Despite this, the operating income margin of 34.51% suggests that the company's cost control efforts are having a positive impact.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Origin Bancorp, providing a deeper understanding of the company's financial health and market position.
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