Investments In Core C&I And Texas Markets Will Strengthen Future Performance

Key Takeaways

• Strategic investments in key markets are poised to drive loan growth and revenue expansion, enhancing BOK Financial's profitability.
  
• Strong credit performance and strategic hires are expected to bolster loan growth and stabilize earnings amidst varying economic conditions.
  
• Declines in healthcare and real estate loans, coupled with yield curve dependency, pose revenue and margin risks for BOK Financial.

Catalysts

Operates as the financial holding company for BOKF, NA that provides various financial products and services in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, and Kansas/Missouri.

• BOK Financial has made strategic investments in expanding the Core C&I and Texas markets, which should drive loan growth and boost revenue moving forward.
  
• The company's long-term focus on fee income, which contributes 40% of total revenue, positions it to enhance profitability and stabilize earnings amidst varying economic conditions.
  
• With its strong credit performance and low net charge-off rates expected to persist, BOK Financial is likely to see benefits to its net margins by maintaining high-quality loan portfolios.
  
• Strategic hires in revenue-generating roles and team lift-outs are anticipated to bolster loan growth prospects, thereby contributing positively to future revenue.
  
• Trading revenue, backed by client demand and market conditions, is expected to grow, which can further elevate net interest income and lead to higher earnings.

BOK Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BOK Financial's revenue will grow by 7.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 25.8% today to 23.6% in 3 years time.
• Analysts expect earnings to reach $599.9 million (and earnings per share of $9.74) by about January 2028, up from $523.6 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 15.2x on those 2028 earnings, up from 13.5x today. This future PE is greater than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 1.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.41%, as per the Simply Wall St company report.

BOK Financial Future Earnings Per Share Growth

Risks

• The decrease in healthcare business loans by 4.4% linked quarter and commercial real estate balances by 2.5% could signal potential longer-term contraction or volatility in these segments. These fluctuations might adversely affect BOK Financial's revenue and net margins if they are not mitigated or reversed with other growth areas.
  
• Portfolio yields decreased by 46 basis points during the quarter due to a predominantly floating rate loan portfolio repricing lower. If this trend continues, it might impact net interest income and earnings negatively.
  
• Although energy loans increased, the overall lending environment, as reflected in C&I areas and potential risks with new administration policies, could introduce uncertainties that affect revenue growth in this portfolio.
  
• The growth in trading-related net interest income is heavily reliant on the steepening yield curve. Any deteriorating conditions in the yield curve could slow trading revenue, thereby impacting total revenue and earnings projections.
  
• If economic conditions change rapidly, leading to heightened loan payoff activity as previously experienced in the specialized business lines, this could pose risks to sustained loan growth and in turn impact future revenue projections.

Valuation

• The analysts have a consensus price target of $124.33 for BOK Financial based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.5 billion, earnings will come to $599.9 million, and it would be trading on a PE ratio of 15.2x, assuming you use a discount rate of 6.4%.
• Given the current share price of $110.47, the analyst's price target of $124.33 is 11.2% 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.