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Higher Costs Curb Bank of the Ozarks' Profits: Time to Sell?

Zacks Equity Research

Shares of Bank of the Ozarks, Inc. OZRK have lost 6.7% in a year’s time against 6.9% growth of the industry it belongs to. Although, the company remains well poised for organic as well as inorganic growth, its profitability is likely to be hurt because of continuously rising expenses.

The company’s Zacks Consensus Estimate for the current-year earnings have also been revised slightly downward over the last 60 days, reflecting analysts’ pessimism regarding its earnings growth potential. As a result, the stock currently carries a Zacks Rank #4 (Sell).

Given the concerns surrounding the company and downward estimate revisions, the stock has limited upside potential.

Over the last four years (2012-2016), the company’s expenses increased at a CAGR of 22.3%. Moreover, given that it continues with its expansion plans, expenses are expected to remain elevated, going forward.

Also, the company has substantial exposure to real estate loans, accounting for nearly 90% of total loans and leases. Although the housing sector has been showing improvement, any further deterioration in real estate prices will pose a threat.

Nevertheless, Bank of the Ozarks’ net interest margin (NIM) has started to show some improvement with the rise in interest rates. Higher NIM is likely to aid revenue growth, going forward.

Stocks Worth Considering

A few better-ranked stocks in the same space are First Bancorp FBNC, Farmers Capital Bank Corporation FFKT and Capstar Financial Holdings, Inc. CSTR.

First Bancorp’s earnings estimate has been revised 8.6% upward for the current year over the last 30 days. In the past year, the company’s share price has been up 47.2%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Farmers Capital Bank has a Zacks Rank #2 (Buy). Its earnings estimate for the current year has remained stable over the last 30 days. The stock has risen 18.8% in a year.

Capstar Financial also has a Zacks Rank of 2. Its earnings estimate has been revised 24.1% upward over the last 30 days. The company’s shares have surged nearly 15% in a year.

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Bank of the Ozarks (OZRK) : Free Stock Analysis Report
Farmers Capital Bank Corporation (FFKT) : Free Stock Analysis Report
First Bancorp (FBNC) : Free Stock Analysis Report
Capstar Financial Holdings Inc. (CSTR) : Free Stock Analysis Report
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