Tactical Innovation And Market Expansion Propel Exciting Profitability Prospects

Key Takeaways

• Strategic investments in technology and data analytics could enhance profitability by improving decision-making, risk management, and operating efficiencies.
  
• Expansion into high-growth markets like Metro Texas and the Southeast is expected to drive future revenue and deposit growth.
  
• Pressure on net interest margin, loan growth challenges, and credit risk could constrain profitability despite efforts to manage costs and optimize strategic client selection.

Catalysts

Operates as a bank holding company for Origin Bank that provides banking and financial services to small and medium-sized businesses, municipalities, and retail clients in Texas, Louisiana, and Mississippi.

• Origin Bancorp has strategically invested in technology and data analytics to improve decision-making and risk management, which could enhance net margins and overall profitability in the long run.
  
• The company is focused on improving operating efficiencies, including successful implementation of robotics process automation, which could lower expenses and improve net margins.
  
• Expansion into dynamic growth markets such as Metro Texas and the Southeast, including South Alabama and the Florida Panhandle, is expected to drive future revenue growth as these regions offer significant opportunities for deposit and loan growth.
  
• Origin Bancorp has been actively managing its deposit portfolio to optimize costs, which could lead to improved net interest margins as the company capitalizes on lower-cost deposit growth.
  
• The company is preparing to cross $10 billion in assets, which positions it for future growth and scalability, potentially leading to an increase in earnings and shareholder value once strategic initiatives are fully realized.

Origin Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Origin Bancorp's revenue will grow by 6.8% annually over the next 3 years.
• Analysts are assuming Origin Bancorp's profit margins will remain the same at 22.0% over the next 3 years.
• Analysts expect earnings to reach $92.1 million (and earnings per share of $2.93) by about November 2027, up from $75.6 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 14.6x on those 2027 earnings, up from 14.5x 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 grow by 0.28% 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.

Origin Bancorp Future Earnings Per Share Growth

Risks

• The company's net interest margin is experiencing pressure due to higher than expected deposit costs and potential Fed rate cuts, which could contribute to earnings compression.
  
• There are challenges with loan growth, as strategic client selection is leading to some planned reductions, potentially impacting revenue maximization.
  
• Despite recent growth in deposits, the company is actively managing interest-bearing accounts to address cost pressures, which could affect net interest income margins and profitability.
  
• The company has plans to achieve short-term profitability, yet it needs to operate in line with peers and outline specific revenue and expense opportunities to reach acceptable profitability levels, possibly constraining net margins.
  
• Past issues like an increase in net charge-offs, even though managed, highlight ongoing credit risk fluctuations that could impact future earnings consistency.

Valuation

• The analysts have a consensus price target of $36.6 for Origin 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 $418.6 million, earnings will come to $92.1 million, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of $35.14, the analyst's price target of $36.6 is 4.0% 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.