Improved Asset Quality Will Lower Risk And Strengthen Future Earnings Potential

Key Takeaways

• Strong loan portfolio growth and strategic funding cost management indicate potential revenue increases and stable net interest margins.
  
• Solid capital position, supported by stock repurchases and dividends, suggests potential EPS growth and stable earnings with lower risk.
  
• Rising funding costs and competition for deposits might challenge profitability, with potential issues in liquidity, earnings, and asset quality impacting future growth.

Catalysts

Operates as a bank holding company for Great Southern Bank that provides a range of financial services in the United States.

• Great Southern Bancorp's strong loan portfolio growth, especially in multifamily residential loans and a robust pipeline for construction loans, signals potential future revenue increases.
  
• The strategic management of funding costs alongside the ability to renew time deposits at lower rates may help support net interest margin stability, which could enhance net margins.
  
• The bank's disciplined approach to balance sheet management and the potential reduction in funding cost pressures from lower interest rates could positively impact future earnings.
  
• The strong capital position, supported by stock repurchases and a solid dividend policy, highlights potential EPS growth as buybacks reduce outstanding shares.
  
• Enhanced asset quality, with decreased nonperforming assets and net charge-offs, signifies stable earnings potential and lower risk moving forward.

Great Southern Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Great Southern Bancorp's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 28.5% today to 26.1% in 3 years time.
• Analysts expect earnings to reach $64.2 million (and earnings per share of $5.71) by about January 2028, up from $61.8 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 11.2x today. This future PE is greater than the current PE for the US Banks industry at 12.6x.
• Analysts expect the number of shares outstanding to decline by 1.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.74%, as per the Simply Wall St company report.

Great Southern Bancorp Future Earnings Per Share Growth

Risks

• Rising funding costs and heightened competition for deposits, as mentioned, could impact future profitability and net interest margin if the bank is unable to effectively manage these pressures.
  
• The decline in total deposits by $91.9 million from the previous quarter highlights potential challenges in sustaining the bank's liquidity and growth, which could affect revenue generation.
  
• The loss of the terminated interest rate swap benefit after Q3 2025 may reduce interest income by approximately $2 million per quarter, potentially impacting earnings.
  
• Non-recurring noninterest expense items affected annualized return on average common equity and return on average assets, suggesting risk in controlling operating expenses which can impact net margins.
  
• The increase in foreclosed assets and potential slow sale of these assets, like the office property in St. Louis, could pose a risk to asset quality and increase expenses, influencing overall profitability.

Valuation

• The analysts have a consensus price target of $64.67 for Great Southern Bancorp 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 $245.5 million, earnings will come to $64.2 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $59.01, the analyst's price target of $64.67 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.