Digital Banking And Regional Competition Will Deter Prospects

Key Takeaways

• Increased competition from fintechs and digital banks threatens core deposit growth and could erode customer loyalty, limiting long-term fee income and net margin stability.
  
• Heavy reliance on regional commercial real estate lending and a concentrated geographic footprint heighten vulnerability to local economic shifts and potential credit losses.
  
• Conservative risk management, digital banking investments, strong capital levels, and strategic real estate lending position the bank for stable earnings and long-term growth resilience.

Catalysts

Operates as a bank holding company for Great Southern Bank that provides a range of financial services in the United States.

• Continued competitive pressures for both loan originations and deposit gathering in the Midwest and Southern U.S. may limit Great Southern Bancorp's ability to achieve above-market revenue growth, especially as near-term loan demand remains soft, potentially suppressing net interest income and overall earnings.
  
• The rise of digital-only banking solutions and fintech platforms threatens to accelerate customer attrition over the long term, which could limit core deposit growth and reduce fee income, challenging net margin stability as competition intensifies for digitally minded clients.
  
• Heavy concentration in commercial real estate and construction lending heightens the risk of outsized credit losses if regional real estate markets weaken, putting downward pressure on future earnings and book value even as the company's asset quality currently appears strong.
  
• The bank's regional footprint, mainly focused in Missouri and nearby markets, leaves profitability and asset growth vulnerable to localized economic downturns or slower demographic growth, posing longer-term risks to revenue expansion and earnings diversification.
  
• Ongoing increases in technology and compliance costs due to both strategic digital investment and evolving regulatory demands may outpace the company's ability to leverage efficiency gains, leading to potential margin compression and limiting future improvements in operating efficiency.

Great Southern Bancorp Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Great Southern Bancorp's revenue will decrease by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 31.1% today to 22.5% in 3 years time.
• Analysts expect earnings to reach $49.5 million (and earnings per share of $4.98) by about May 2029, down from $71.3 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.6x on those 2029 earnings, up from 10.5x today. This future PE is greater than the current PE for the US Banks industry at 11.4x.
• Analysts expect the number of shares outstanding to decline by 5.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.25%, as per the Simply Wall St company report.

Risks

• Great Southern Bancorp's conservative credit risk management and disciplined expense control have consistently supported strong asset quality, low nonperforming assets (0.14% of total assets), and stable earnings even during uncertain loan demand periods, which can mitigate long-term earnings volatility and downside risk.
  
• The company's proactive investments in technology upgrades, core system capabilities, and digital banking infrastructure-despite ongoing cost discipline-position it to capitalize on long-term trends toward digital banking adoption, which can improve operating efficiency, customer retention, and future net margins.
  
• Robust capital levels, tangible common equity at 10.5% of total assets, and regular stock repurchases demonstrate management's commitment to shareholder value and provide the company with financial flexibility to seize new growth opportunities, supporting long-term book value per share and total returns.
  
• Exposure to high-growth multifamily and commercial real estate lending within a region expected to benefit from economic and population growth in the Midwest and Southern US positions the bank for future loan growth when conditions improve, supporting revenue growth and scalability of fee-based services.
  
• The competitive low deposit cost structure, increasing brokered and checking deposits, and access to substantial contingent liquidity lines (~$1.55 billion) provide resilience in managing funding needs and mitigating risks from deposit competition, which helps protect earnings and net interest margin over time.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $67.5 for Great Southern Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $220.5 million, earnings will come to $49.5 million, and it would be trading on a PE ratio of 15.6x, assuming you use a discount rate of 7.2%.
• Given the current share price of $68.87, the analyst price target of $67.5 is 2.0% lower. 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.