Expanding Into Dallas And Houston Will Strengthen Future Prospects

Key Takeaways

• Expansion into new geographic markets and disciplined pricing strategies are expected to enhance revenue growth and market share.
  
• Integration of acquisitions and focus on diversified income streams will likely boost earnings and profitability.
  
• Intense loan competition, geographic risks, and challenges in deposit growth and acquisitions could pressure margins and affect profitability.

Catalysts

Operates as the bank holding company for b1BANK that provides various banking products and services in Louisiana and Texas.

• Business First Bancshares plans to focus on healthy diversified growth, which includes disciplined loan and deposit pricing. This strategy is likely to result in revenue growth and sustained net interest margins.
  
• Expansion into different geographic markets, such as Dallas and Houston, could help drive future growth, impacting revenue positively by increasing their market share and customer base.
  
• The integration and performance of recent acquisitions, such as Oakwood Bank, are expected to be accretive to earnings, enhancing overall profitability and tangible book value per share.
  
• Continued focus on noninterest income sources, such as expanding their customer swap business line and SBA loan services, can drive revenue growth and improve earnings by diversifying income streams.
  
• Effective expense management while investing in technology and talent indicates potential improvement in net margins and earnings by increasing operational efficiency.

Business First Bancshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Business First Bancshares's revenue will grow by 14.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.9% today to 27.2% in 3 years time.
• Analysts expect earnings to reach $105.8 million (and earnings per share of $3.4) by about March 2028, up from $59.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from 12.2x today. This future PE is greater than the current PE for the US Banks industry at 11.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.59%, as per the Simply Wall St company report.

Business First Bancshares Future Earnings Per Share Growth

Risks

• High competition in loan pricing and market aggressiveness could pressure net interest margins and affect future earnings growth.
  
• Exposure to geographic risk, with significant loan concentrations in Dallas and Houston markets, may impact asset quality and earnings, especially in case of regional economic downturns.
  
• Dependence on successful organic deposit growth to manage borrowing and deposit costs may limit flexibility and impact net margins if growth targets are not met.
  
• Increases in interest rates or inability to reprice loans and deposits adequately could adversely affect net interest margin and overall profitability.
  
• Risks associated with integration and realization of synergies from recent acquisitions, such as Oakwood Bank, could lead to unexpected expenses or delays, impacting net margins and earnings.

Valuation

• The analysts have a consensus price target of $32.7 for Business First Bancshares based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $30.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $388.4 million, earnings will come to $105.8 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 6.6%.
• Given the current share price of $24.6, the analyst price target of $32.7 is 24.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.