TRADE INSTRUCTIONS
Date: June 5, 2017
Name: Bank of the Ozarks
Symbol: OZRK (NasdaqGS)
Type: Open
Limit: Buy below $47

TRADE TARGETS
Holding Period: 3 months
Target Return: 10.6%
Annualized Return: 42.4%
Target Price: $52
Stop Loss Level: $36

COMPANY DESCRIPTION
Bank of the Ozarks provides a range of retail and commercial banking services through 250 locations, including offices in Arkansas, Georgia, Florida, North Carolina, Texas, Alabama, South Carolina, New York and California. Its deposit services include checking, savings, money market, time deposit and individual retirement accounts. Its loan services include various types of real estate, consumer, commercial, industrial and agricultural loans and various leasing services. Link to company website.

TRADE RATIONALE
We’ve closed out three positions during the past week, so it’s time to add a couple to get our portfolio back up to ten holdings to maintain proper diversification. Our Rapid Profits Matrix doesn’t see too many large-caps stocks that it likes at the moment, but it is giving us the green light on a couple of mid-caps stocks that have been flying under the radar lately including Bank of the Ozarks.

You may not be familiar with Bank of the Ozarks unless you live within its service area, but it is a $5 billion stock that has doubled in value since 2013. However, OZRK has cooled off over that past three months after spiking more than 50% in the weeks after the November election. I don’t know if it will make it back up to $56 during our target hold period, but it should make it to $52 given its ability to grow revenue and earnings at a faster pace than its price multiples would indicate.

OZRK grew revenue by 36% during the first quarter, while earnings have increased by an average rate of 21% over the past five years. Most recently, quarterly earnings by 28% during the first quarter, roughly 40% above its long-term earnings growth rate of 20.8%. Throw in a profit margin of 40%, and you have one of the healthiest regional banks in the country.

Two weeks ago the company announced a secondary offering of 6.6 million shares of common stock, pushing its share price down proportionately. The proceeds from this sale have been earmarked for “organic growth”, which is intentionally vague but leaves open the possibility that the company may be on the verge of making an acquisition. Given its management team’s excellent track record, I believe such an announcement would push its share price back above $50 once future earnings from such a transaction can be estimated.

The company’s next quarterly earnings announcement is scheduled for the second week of July, at which time I expect the use of proceeds from the secondary stock offering to be revealed. I don’t expect much price movement between now and then, but want to establish this position now before that news may be leaked and starts pushing its share price higher in anticipation of the announcement.

Note: OZRK is optionable, but trades on thin volume so use price limits when entering orders.