Stock Analysis

Live Oak Bancshares, Inc. Just Beat Revenue Estimates By 27%

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NYSE:LOB
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It's been a pretty great week for Live Oak Bancshares, Inc. (NASDAQ:LOB) shareholders, with its shares surging 13% to US$32.90 in the week since its latest third-quarter results. Revenue of US$142m beat expectations by an impressive 27%, while statutory earnings per share (EPS) were US$0.96, in line with estimates. Earnings are an important time for investors, as they can track a company's performance, look at what the analysts are forecasting for next year, and see if there's been a change in sentiment towards the company. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

Our analysis indicates that LOB is potentially undervalued!

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NasdaqGS:LOB Earnings and Revenue Growth October 30th 2022

Taking into account the latest results, the current consensus, from the four analysts covering Live Oak Bancshares, is for revenues of US$484.8m in 2023, which would reflect a chunky 10% reduction in Live Oak Bancshares' sales over the past 12 months. Statutory earnings per share are forecast to crater 49% to US$2.35 in the same period. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$467.4m and earnings per share (EPS) of US$2.36 in 2023. There doesn't appear to have been a major change in sentiment following the results, other than the small lift in revenue estimates.

Even though revenue forecasts increased, the consensus price target 6.6% to US$35.50, perhaps suggesting thatthe analysts have become more pessimistic about the lack of earnings growth. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Live Oak Bancshares, with the most bullish analyst valuing it at US$40.00 and the most bearish at US$33.00 per share. This is a very narrow spread of estimates, implying either that Live Oak Bancshares is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. We would highlight that sales are expected to reverse, with a forecast 8.1% annualised revenue decline to the end of 2023. That is a notable change from historical growth of 21% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 6.2% per year. It's pretty clear that Live Oak Bancshares' revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The most obvious conclusion is that there's been no major change in the business' prospects in recent times, with the analysts holding their earnings forecasts steady, in line with previous estimates. They also upgraded their revenue estimates for next year, even though sales are expected to grow slower than the wider industry. The consensus price target fell measurably, with the analysts seemingly not reassured by the latest results, leading to a lower estimate of Live Oak Bancshares' future valuation.

With that in mind, we wouldn't be too quick to come to a conclusion on Live Oak Bancshares. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Live Oak Bancshares analysts - going out to 2024, and you can see them free on our platform here.

Plus, you should also learn about the 1 warning sign we've spotted with Live Oak Bancshares .

What are the risks and opportunities for Live Oak Bancshares?

Live Oak Bancshares, Inc. operates as the bank holding company for Live Oak Banking Company that provides various commercial banking products and services to individuals, small businesses, and professionals in North Carolina, the United States.

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Rewards

  • Trading at 18.2% below our estimate of its fair value

  • Earnings have grown 25.9% per year over the past 5 years

Risks

  • Earnings are forecast to decline by an average of 21.4% per year for the next 3 years

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