Home Bancshares (NYSE:HOMB) stock has been under pressure lately, but that’s largely due to the historic turmoil in the banking industry. HOMB is one of the most stable and savvy banking companies in the world, but that hasn’t been enough to quell investors’ fears, not after the catastrophic failures of two major US banks.
As a result of those fears, HOMB shares are down over 11% year-to-date, with most of the decline coming over the last few months. Even still, shares are only down 2.5% from the same quarter 52 weeks ago.
While those returns won’t raise any eyebrows, the dividend will. A 3.6% annual dividend yield means a quarterly dividend of $0.18 per share goes back into investors’ pockets. And Home Bancshares has consistently increased it, with the current dividend up over 9% year-over-year (YOY).
Add to that an eyepopping year-over-year revenue increase of nearly 60% in the first quarter of 2023, and it’s hard to build a compelling bear case. Nevertheless, the threats to the banking industry are real due to soaring interest rates and heightened scrutiny, especially in the short term.
So in a turbulent industry, is Home Bancshares stock a safe investment?
Home Bancshares Overview
The Arkansas-based bank holding company started in 1999 as First State Bank. Since then, Home Bancshares completed multiple acquisitions and grew to include 222 banks across the country. With a market capitalization of $4.04 billion, the company has a broad reach but remains a minnow in a sea of whales like JP Morgan Chase and Bank of America.
In 2022, the company acquired Happy Bancshares, which operates the Happy State Bank. This $962 million purchase was the largest the company had completed so far and it was critical for many reasons.
First, it gave Home Bancshares its first exposure to Texas, one of the most populated states in the country. Second, it substantially increased HOMB’s loan portfolio at a time when loans were in decline for the company. Finally, Happy State had $6.91 billion in assets.
Despite all the positive growth, investors have one pressing question: Does Home Bancshares have any chance of going the way of Silicon Valley Bank?
SVB failed earlier this year and sent banking stocks into a freefall, as customers and investors alike flocked to financial safe havens. SVB failed because of poor investments and insufficient liquidity to accomodate a run on the bank.
So, is Home Bancshares safe? The answer to the question appears to be a resounding no. In HOMB’s first quarter of 2023 earnings report, the company’s main priority was to allay investors’ fears about the bank’s liquidity. John Allison, the chairman and CEO of Home Bancshares, said the company has more than enough liquidity to pay all of its depositors back, and it would still have $1.7 billion left over.
While that’s certainly comforting, the positive news hasn’t been fully reflected in the share price yet. HOMB shares are still down over 5% over the past month.
HOMB Q1 Ups and Downs
First-quarter revenue of nearly $250 million represented a 53% increase from the same quarter in 2022. This is largely due to increased interest rates in the industry. Even if the growth was substantial year-over-year, revenue was just below estimates for the quarter. The majority of the revenue came from interest income, which was up almost 100% from last year.
Net income soared over 58% YOY to nearly $106 million. Diluted earnings per share were up 27.5% to $0.51. Total deposits and total loans both increased from last year. More importantly, Return on Assets (ROA), a critical indicator of a bank’s profitability, improved to 1.84%. That was up from 1.43% last year.
That’s important because HOMB’s ROA is well above average for the banking industry, which experienced an overall decline in the 1st quarter. A P/E ratio of 11.82 is also relatively low compared to the competition.
With a price-to-book value of just 1.15, financial indicators are positive for Home Bancshares. That means the stock’s decline is largely due to external factors, which still bear careful watching.
Home Bancshares: #1 Bank in America
The banking industry is highly competitive, with large-cap banks and online challengers all vying for market share. The recent turmoil has affected all banks regardless of market cap, due to legititmate fears about rising interest rates, deepening recession, and heightened inflation.
Aside from that, digitization is one of the major challenges for brick-and-mortar banks like Centennial and Happy State. Online and mobile banking have been increasingly adopted by younger generations, and customers expect digital access as a given.
With so much competition in the banking industry, it may seem difficult for HOMB to differentiate itself, but the company has done just fine so far. Forbes named Home Bankshares the #1 bank in America in 2018, 2019, and 2022, based on a number of metrics. With solid fundamentals, savvy acquisitions, and a healthy ROA, Home Bancshares stands apart.
That’s due to the company’s small-town approach to building customer relationships;, the company’s stability and security are attractive to customers looking for a personal touch.
Home Bancshares is a bank holding company with over 200 branches across America. The company has an exceptional reputation because it has made solid acquisitions and strong investments, and has a focus on building long-lasting customer relationships.
Looking ahead, even though revenue was slightly off estimates, there is no reason to believe that the stock is in decline. Currently trading around $20, if there weren’t serious sector concerns the stock would be a steal.
But there are major concerns for the banking industry, meaning there will be volatility for HOMB in the short term. It’s certainly worth keeping an eye on the bank’s liquidity over 2023, but there aren’t any red flags at the moment.
Given the company’s consistent dividend, financial strength, and impressive growth, long-term investors could get a major discount on a well-positioned stock that’s been unfairly overlooked due to factors that are largely outside of its control.
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