Sterne Agee bullish on Simmons First National earnings potential

Simmons First National Corp. management continues to earn the respect of banking analysts at Sterne Agee who recently initiated coverage on the Pine Bluff-based financial  institution.

The analysts rate Simmons First shares as a “buy” citing a target price of $52.50 and strong return on assets (ROA) projections well into 2016. Simmons First shares rose $1.10 Monday (Nov. 24) on the favorable outlook. Shares were trading at $41.50, up 2.72% in the morning session.

“We believe that management will be successful in achieving an ROA of 1.25% on the company’s pro forma asset base of $8 billion in 2016,” notes Sterne Agee analysts Peyton Green, Kenneth James and Maxwell Neely.

The analysts expect recent the mergers of Community First, Liberty Bancshares, Delta Trust and Metropolitan National to boost earnings per share to $3.20 in fiscal 2015.

“Our 2015 expected earnings per share reflects that Simmons will capture 16 cents or 36%, of the fully phased-in earnings benefit from cost savings of 44 cents. Our 2016 earnings estimate reflects a fully phased-in benefit and earnings growth of 8% year over year due to organic growth. Although not included in our 2015 estimate, we do believe that initiatives to expand Small Business lending, credit card, consumer finance and equipment leasing across the franchise will benefit 2016 earnings,” notes the analyst team.

For 2014, Stern Agree expects Simmons First to earn $2.33 per share, which is one cent higher than Wall Street consensus. Earnings are expected to grow to $3.20 and $3.75 in the next two years.

“We suggest buying the shares before others figure out the earning power potential. Although Simmons will emerge with a market cap of $1.2 billion (after the Community First and Liberty deals close), institutional ownership will drop to 25% of pro forma shares versus 42% in third quarter this year because the latest deals were privately owned. We believe that investors will be attracted to the earnings momentum and lift in returns that we project for Simmons First in short order,” the analysts noted in their release.