Expansion Into Northwest Houston And Technology Focus Will Reduce Future Costs

Key Takeaways

• Expansion in Northwest Houston aims to boost revenue through a growing customer base and increased lending.
  
• Decreasing costs of liabilities and shifting customer behavior to tech-driven transactions is expected to enhance net margins and earnings.
  
• Competitive pressures and rising noninterest expenses could constrain net margins, while limited loan growth capacity might pressure revenue and earnings growth.

Catalysts

Operates as the bank holding company for Home Bank, National Association that provides various banking products and services in Louisiana, Mississippi, and Texas.

• The expansion into Northwest Houston with a new branch and the establishment of a commercial team offers potential to increase customer base and lending activity, positively impacting future revenue growth.
  
• Efforts to decrease the cost of interest-bearing liabilities, particularly through strategic repricing of CDs below their current rates, are expected to enhance net margins by reducing funding costs.
  
• The focus on changing customer behavior towards more technology use for transactions may allow the company to close some branches, leading to lower noninterest expenses and improving net margins.
  
• Strategic emphasis on increasing C&I loans over multifamily loans can drive higher yields and enhance net interest income, influencing overall earnings positively.
  
• The gradual adjustment of deposit rates to reduce interest expenses, while maintaining competitive market loan rates, is expected to support the expansion of the net interest margin, driving improved earnings.

Home Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Home Bancorp's revenue will grow by 3.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 27.8% today to 26.5% in 3 years time.
• Analysts expect earnings to reach $38.6 million (and earnings per share of $5.29) by about January 2028, up from $36.1 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 11.3x on those 2028 earnings, which is the same as it is today today. This future PE is lower than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 3.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.33%, as per the Simply Wall St company report.

Home Bancorp Future Earnings Per Share Growth

Risks

• The slight decrease in noninterest income and expectations for minimal growth in this area could impact revenue and earnings.
  
• With a high loan-to-deposit ratio of 97.8%, there may be limited capacity to fund new loan growth without raising additional deposits, potentially pressuring net margins.
  
• The potential need to reduce money market rates further to remain competitive could impact net interest income.
  
• Noninterest expenses are expected to rise by 3.5% in 2025, mainly due to compensation and technology costs, which could place pressure on net margins unless compensated by equivalent revenue growth.
  
• Competitive pricing pressures in their loan markets could slow yield expansion, affecting net interest margins and earnings growth.

Valuation

• The analysts have a consensus price target of $51.67 for Home 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 $145.3 million, earnings will come to $38.6 million, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 6.3%.
  
• Given the current share price of $50.48, the analyst's price target of $51.67 is 2.3% 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.