Home Bancshares: Relatively Cheap Valuation Sets Up A H-O-M-B Run Opportunity (NASDAQ:HOMB)

Investment Thesis

Headquartered in Conway, Arkansas, Home BancShares, Inc. (HOMB) is a $16.9 billion asset holding company and parent to Centennial Bank, a Southeastern commercial and retail bank. Centennial provides a wide range of commercial and retail banking services to businesses, developers, and individuals. With its more than 165 branch location, Centennial offers services across the state of Arkansas, the panhandle and south Florida, Alabama’s Gulf Coast and New York City.

While HOMB has continued to grow much faster than bank peers, some have called into question the long-term net interest margin (NIM) potential juxtaposed against the rate of future earnings growth. While credit is difficult to forecast, I do believe future net charge-offs (NCOs) are going to be limited in nature. Expense management has been a clear priority for the management team, and in my mind, it will be the swing factor for future profitability.

Today, my bullish stance is driven by two major variables. First, upon further review of the credit portfolio, I believe that HOMB is set up well to absorb all future NCOs that might hide in the lending portfolio. Second, and this one is geared more for the longer term, I believe the NIM is rather resilient at a ~4.00% level. While it is clear that I do have it working lower, HOMB’s niche lending and superior deal placement should warrant higher loan yields.

It’s always frustrating to see banks prove their strong profitability ratios, only to have shareholders compress valuation simply due to peers working lower. Banks often trade in tandem with one another and their valuations rarely get out of sync, at least from a relative comparison. In my mind, once there are some signs of sustainable economic growth, or a more productive yield curve improvement, I believe HOMB will be one of

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