Home Bancshares: Hold Rating with Modest Growth and Valuation Outlook

Ben Gerlinger, an analyst from Citi, assigned the Hold rating on Home Bancshares (HOMB – Research Report). The associated price target remains the same with $26.00.

Ben Gerlinger has given his Hold rating due to a combination of factors that influence the future performance and valuation of Home Bancshares. The core operational results of the company were slightly better than anticipated, with a stable net interest margin (NIM) and an increase in core loan growth. However, Gerlinger suggests that the current share price may already reflect the anticipated forward rate curve. This implies that while the bank may have positive attributes, its stock price might not offer significant upside compared to its regional banking peers. Furthermore, while credit quality is currently seen as healthy, there is an expectation that loan loss provision expenses could rise if the bank experiences more robust growth in the coming years.
The valuation of Home Bancshares also comes into play, as the stock trades at a slight discount to its regional peers, based on the implied cost of equity metric used by Gerlinger. The modest valuation gap between Home Bancshares and its competitors is closing, which might suggest a limited opportunity for relative outperformance. Despite the upward adjustments to earnings estimates for the years 2024 and 2025, reflecting potential expense management efforts and a modest NIM expansion, the target price remains unchanged. This decision is partly due to the belief that share repurchases will counteract the accumulation of excess capital in the cost of equity and residual income models. Therefore, while the expected share price return is 8.3%, the overall outlook justifies a Hold rating rather than a more bullish stance.

In another report released yesterday, KBW also maintained a Hold rating on the stock with a $28.00 price target.

Based on the recent corporate insider activity of 40 insiders, corporate insider sentiment is neutral on the stock.

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Home Bancshares (HOMB) Company Description:

Home Bancshares, Inc. is a bank holding company, which engages in the provision of financial services. It primarily offers a broad range of commercial and retail banking and related financial services to businesses, real estate developers and investors, individuals, and municipalities through its wholly owned community bank subsidiary – Centennial Bank. The company was founded by John W. Allison and Robert H. Adcock Jr. in 1998 and is headquartered in Conway, AR.