Bank OZK's Shares Experienced Significant Decline This Week: Worth Considering a Purchase Now?
Stocks of Bank OZK (OZK, -1.38%) took a dive on Wednesday, following a Wall Street analyst changing their stance to 'sell' due to concerns over the bank's loan portfolio. Some saw this as a potential buying opportunity.
By midday Thursday, the stock had lost 11.3% for the week, according to data from S&P Global Market Intelligence, as investors sought to decipher the implications and future implications for Bank OZK.
Unusual move to a sell rating
Based in 228 branches across five Southeastern states, Bank OZK offers commercial loans nationwide. It was the bank's loan book that piqued the interest of Citigroup analyst Benjamin Gerlinger, who downgraded the bank's stock from 'buy' to 'sell' due to worries about the financial health of some of the bank's largest borrowers.
Gerlinger highlighted two main concerns: vacancies at a Bank OZK-backed multi-use project in Atlanta named Echo Street West, and apprehensions about the viability of a significant life sciences development in San Diego. Collectively, these projects make up around 3.8% of the bank's non-acquired loan portfolio. If there are issues with life sciences projects, it could impact Bank OZK's loan book as a whole.
Thursday saw Bank OZK attempting to allay concerns with a regulatory filing. The bank reaffirmed its guidance and stated that they are confident in the progress of both the Atlanta and San Diego projects.
Is now the right time to buy Bank OZK stock?
The updates from Bank OZK should offer some comfort. In the case of the San Diego project, developers have only drawn about half of the $915 million loan, and the sponsor has nearly $1 billion in equity invested in the deal. This decreases the possibility of the developers abandoning the project and leaving lenders with the bill.
Regarding the Atlanta project, the loan commitment is much smaller at $135 million, and Bank OZK reported that the sponsor is making strides in leasing the building.
If those buildings secure tenants, it will be shown that Gerlinger's concerns were unwarranted. If not, these loans could loom over Bank OZK's earnings for years to come.
Investors should be aware of the risks involved, and it may be several years before it's clear whether Gerlinger's concerns were justified. This could perhaps present a buying opportunity, but only for those with the patience and resilience to cope with potential further fluctuations in the near future.
After the downgrade of Bank OZK's stock by Citigroup's analyst Benjamin Gerlinger, some investors saw this as a potential opportunity for buying at a lower price, given their belief in the bank's ability to overcome the challenges faced by its Echo Street West project in Atlanta and the San Diego life sciences development. With these concerns in mind, some investors might choose to allocate part of their finance or money into Bank OZK stocks, hoping for future investment gains if these projects turn out successful.
