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Key Takeaways
- Strategic asset management and share repurchases are likely to enhance earnings per share and shareholder value.
- Improved credit quality and reduced nonperforming assets could boost net margins and profitability.
- Economic pressures and competition may squeeze margins and slow growth, with rising loan losses and reduced noninterest income challenging revenue and earnings.
Catalysts
About Great Southern Bancorp- Operates as a bank holding company for Great Southern Bank that provides a range of financial services in the United States.
- The recent rate cuts by the Federal Reserve are anticipated to reduce deposit costs over time, potentially stabilizing or improving net interest margins and positively affecting net interest income.
- The company continues to experience moderate loan growth, particularly in residential loans transitioning from construction to permanent financing, which is expected to enhance revenue through increased interest income.
- A solid pipeline of loan commitments and unfunded lines positions the company to capitalize on selective lending opportunities, potentially driving future revenue growth.
- Great Southern Bancorp's strategy to maintain a strong capital position through disciplined asset and liability management and share repurchases is likely to boost earnings per share and shareholder value.
- Improvement in credit quality, with a significant reduction in nonperforming assets, may lead to lower provision for credit losses, effectively increasing net margins and profitability.
Great Southern Bancorp Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- 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 28.0% today to 26.1% in 3 years time.
- Analysts expect earnings to reach $63.5 million (and earnings per share of $5.6) by about December 2027, up from $60.0 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 2027 earnings, up from 12.6x today. This future PE is greater than the current PE for the US Banks industry at 12.9x.
- Analysts expect the number of shares outstanding to decline by 0.96% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 6.46%, as per the Simply Wall St company report.
Great Southern Bancorp Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Fluctuating interest rates and economic pressures may increase funding costs faster than assets reprice, potentially squeezing net interest margins and impacting earnings.
- Increased competition for deposits and elevated deposit costs may constrain net interest income growth, potentially affecting revenue.
- Declines in construction and commercial business loans, reflective of economic uncertainties, could slow loan growth and impact future revenue.
- The decrease in noninterest income, particularly from reduced fees like overdraft and debit card fees, may challenge overall revenue maintenance.
- Future loan losses, particularly in commercial real estate, could rise if economic conditions worsen, impacting net margins and earnings.
Valuation
How have all the factors above been brought together to estimate a fair value?- 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 2027, revenues will be $243.0 million, earnings will come to $63.5 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 6.5%.
- Given the current share price of $64.79, the analyst's price target of $64.67 is 0.2% lower. 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.
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Disclaimer
Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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