The Fed acted as expected today with the central bank cutting rates by 25-bps. What worried the market, and what should worry the banks out there, is the Fed stopped short of offering up the beginning of an easing cycle. It set the stage for rate hikes to come in the future, as early as the September meeting if needed. That unrest led to a tightening of interest rate spreads, ultimately putting more pressure on banks. One of those smaller banks is today’s Bear of the Day, Bank OZK (OZK - Free Report) .
Formerly known as Bank of the Ozarks, Bank OZK provides retail and commercial banking services to businesses, individuals, and non-profit and governmental entities. The company accepts non-interest bearing checking, interest bearing transaction, business sweep, savings, money market, individual retirement, and other accounts, as well as time deposits. Its loan products include loans secured by residential 1-4 family, non-farm/non-residential, agricultural, construction/land development, multifamily residential properties, and other land loans; small business and consumer loans; indirect consumer marine and RV loans; small business administration, farm service agency, and USDA guaranteed loans; commercial and industrial loans; and loans to businesses or individuals engages in the production of timber, poultry, livestock, or crops.
Currently, the bank is a Zacks Rank #5 (Strong Sell). The reason for the unfavorable rating comes from a series of negative earnings estimate revisions coming from analysts. Over the last thirty days, six analysts have cut their estimates for the current year and next year. The bearish moves have dropped the Zacks Consensus Estimates for the current year from $3.49 to $3.37 and next year down from $3.61 to $3.31. EPS is expected to contract by 7% year-over-year for next quarter. Next year’s contraction is just under 2%. Now that the Fed has cut rates, net interest margin is likely to contract even further, putting more pressure on earnings from smaller regional banks like Bank OZK.
The pressure has pushed down estimates on several bank stocks. The Banks – Northeast industry now sits in the Bottom 29% of our Zacks Industry Rank. Investors looking for other stocks within the same industry have a few Zacks Rank #1 (Strong Buy) stocks to investigate further. Among them are 1st Constitution Bancorp (FCCY - Free Report) and OFG Bancorp (OFG - Free Report) .
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