Exploring Growth Opportunities In Texas Amid Calculated Repricing And Innovative Expansion

Key Takeaways

• Guaranty Bancshares is poised for growth in the Texas market, leveraging strong liquidity and capital for potential asset expansion and earnings increase.
  
• Strategic repricing and reclassification efforts aim to improve net interest margins and reduce interest expenses, boosting overall profitability.
  
• Cautious best customers and shrinking asset base could limit revenue growth, while decreased loans and noninterest income pressure margins and earnings.

Catalysts

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

• The anticipation of rate reductions in 2025 and a calmer geopolitical environment may catalyze future growth opportunities, particularly in the Texas market, boosting revenue growth.
  
• Guaranty Bancshares is well-positioned for expansion with strong liquidity, capital, and asset quality, potentially allowing them to grow their assets by $1-2 billion through organic growth or acquisitions, positively impacting earnings.
  
• Improvements in net interest margin (NIM) are expected due to strategic repricing of loan and deposit portfolios, leading to better net margins and overall profitability.
  
• The planned reclassification of certificates of deposit (CDs) at lower interest rates than current levels could reduce interest expenses, thereby enhancing net margins.
  
• Potential bolt-on acquisitions facilitated by a robust balance sheet could create synergies and increase revenue streams, enhancing long-term earnings growth.

Guaranty Bancshares Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Guaranty Bancshares's revenue will grow by 4.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.4% today to 24.6% in 3 years time.
• Analysts expect earnings to reach $32.5 million (and earnings per share of $2.87) by about November 2027, up from $27.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 15.1x on those 2027 earnings, up from 15.0x today. This future PE is greater than the current PE for the US Banks industry at 12.8x.
• Analysts expect the number of shares outstanding to decline by 0.31% 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

• Muted growth with best customers being cautious due to current interest rates and geopolitical conditions, which could impact future revenue growth.
  
• Decreased gross loans by $78.5 million leading to potential shortfall in interest income, negatively affecting net earnings.
  
• Noninterest income decreased by $555,000, primarily due to ORE-related valuation and holding costs, potentially putting pressure on net margins.
  
• Significant portion of interest-bearing deposits are certificates of deposit which could be subjected to unfavorable repricing, impacting interest expense and ultimately net interest margins.
  
• Asset base has shrunk by $88 million year-to-date, which could limit growth in earnings if asset deployment into interest-bearing activities does not materialize as planned.

Valuation

• The analysts have a consensus price target of $37.5 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 2027, revenues will be $132.3 million, earnings will come to $32.5 million, and it would be trading on a PE ratio of 15.1x, assuming you use a discount rate of 5.9%.
• Given the current share price of $36.06, the analyst's price target of $37.5 is 3.8% 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.