Strategic Revamps And Agricultural Gains Propel Earnings And Efficiency Growth

Key Takeaways

• Performance improvement initiatives and strong loan growth could enhance operational efficiency, revenue growth, and net interest income.
  
• Strategic use of brokered CDs and potential mergers may improve net interest margins and contribute to earnings growth and shareholder value.
  
• Increasing nonperforming loans, rising expenses, and competitive pressures could impact asset quality, profitability, and liquidity, posing risks to future earnings and revenue growth.

Catalysts

Operates as the bank holding company for Southern Bank that provides banking and financial services to individuals and corporate customers in the United States.

• The performance improvement project underway aims to enhance operations and revenues, which could lead to increased efficiency and higher revenue growth in the future.
  
• Loan growth demonstrated a strong quarter, with a projection of achieving at least mid-single-digit growth for the fiscal year, potentially boosting net interest income and overall earnings.
  
• The bank's strategy to leverage brokered CDs for funding and manage deposit growth optimally to improve net interest margin indicates potential positive margin expansion impacting future earnings.
  
• Favorable agricultural conditions with promising yields and stable prices may boost loan repayments and reduce credit risk, supporting asset quality and potentially enhancing net margins.
  
• Opportunities for future mergers and acquisitions are expected to arise, potentially contributing to revenue growth and operating scale efficiencies, which could improve earnings and shareholder value.

Southern Missouri Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Southern Missouri Bancorp's revenue will grow by 12.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.4% today to 33.6% in 3 years time.
• Analysts expect earnings to reach $76.7 million (and earnings per share of $6.82) by about November 2027, up from $49.2 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 11.6x on those 2027 earnings, down from 15.1x today. This future PE is lower than the current PE for the US Banks industry at 13.3x.
• Analysts expect the number of shares outstanding to decline by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Southern Missouri Bancorp Future Earnings Per Share Growth

Risks

• The increase in nonperforming loans and loans past due could signal potential asset quality issues, which might negatively impact earnings if these loans need to be written down or if the reserve for credit losses needs to be increased.
  
• Rising noninterest expenses, including a significant provision for credit losses and costs related to performance improvement projects, can weigh on net margins and overall profitability.
  
• The competitive pressure in both deposit and loan pricing, along with reliance on brokered CDs, might compress net interest margins and affect future revenue growth.
  
• Potential challenges in the agricultural sector, such as low corn prices and high input costs, might affect loan repayments and lead to increased provisions for credit losses, negatively impacting earnings.
  
• Dependence on seasonal deposit inflows and brokered CDs for funding could pose liquidity risks and affect the bank's ability to sustain net interest income growth if the market environment changes unfavorably.

Valuation

• The analysts have a consensus price target of $68.0 for Southern Missouri 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 $228.6 million, earnings will come to $76.7 million, and it would be trading on a PE ratio of 11.6x, assuming you use a discount rate of 5.9%.
• Given the current share price of $65.8, the analyst's price target of $68.0 is 3.2% 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.