Expansion In Texas And Share Buybacks Will Benefit Future Prospects

Key Takeaways

• Focus on Texas expansion and loan growth supports revenue increase, while maintaining core deposit growth aids margin improvements.
  
• Strong capital position supports aggressive share buybacks, boosting EPS and shareholder value amidst stable asset management.
  
• Tight liquidity, unrealized losses in securities, and a focus on share buybacks over growth could constrain operational flexibility and long-term revenue.

Catalysts

Operates as the bank holding company for Guaranty Bank & Trust, N.A.

• Guaranty Bancshares plans to focus on organic growth and expansion within Texas, anticipating increased opportunities for loan growth, which could positively impact revenue.
  
• The company intends to leverage its strong capital position to aggressively buy back shares, potentially enhancing earnings per share (EPS) and shareholder value.
  
• An improved net interest margin is expected as a result of loan and securities portfolio repricing at higher rates, which can boost overall earnings.
  
• The company has a robust core deposit base and intends to maintain growth in core granular deposits without needing to raise marginal funds, which could help improve its net margins.
  
• Continued low levels of non-performing assets and a well-managed loan portfolio, with a decreasing provision for credit losses, suggest stable to improving net margins and overall financial health.

Guaranty Bancshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Guaranty Bancshares's revenue will grow by 5.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.1% today to 27.3% in 3 years time.
• Analysts expect earnings to reach $38.3 million (and earnings per share of $3.49) by about January 2028, up from $31.5 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 13.0x on those 2028 earnings, down from 15.0x 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 1.34% 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.

Guaranty Bancshares Future Earnings Per Share Growth

Risks

• The decrease in net loans by $191 million year-to-date, despite prospects for loan growth, might signal difficulty in expanding the loan portfolio significantly, potentially affecting future revenue growth.
  
• The increase in unrealized losses in the AFS securities portfolio, which impacted equity, poses a risk to future earnings if market conditions do not improve.
  
• The reduction in cash balances indicates tighter liquidity, which could strain operational flexibility and the ability to capitalize on growth opportunities, impacting net margins.
  
• While nonperforming assets and net charge-offs remain low, the cautious reduction in substandard loans through risk rating upgrades suggests potential underlying credit risks that may affect earnings if economic conditions worsen.
  
• While planned stock repurchases could support share price, the significant allocation of capital for buybacks over internal investment might limit capacity for organic growth, potentially impacting long-term revenue and earnings.

Valuation

• The analysts have a consensus price target of $42.0 for Guaranty Bancshares 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 $140.6 million, earnings will come to $38.3 million, and it would be trading on a PE ratio of 13.0x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $41.3, the analyst's price target of $42.0 is 1.7% 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.