Guaranty Federal Bancshares
Founded in 1913 in Springfield Mo, Guaranty offers a wide range of products for both individuals and local-area businesses. It is found in 9 different locations, has 100+ area surcharge-free ATMs and offers its BaZing checking, a value checking account that offers discounts on on shopping, dining, and traveling, cell-phone protection, vision, and hearing savings, as well as a number of other benefits, for a monthly service charge.
Investment Attractiveness Qualities
Guaranty has increased its net margin and ROE over the past 3 years and it currently selling at 60% of its P/B value with a price target of $30. With a P/E ratio of 7.03, and a Debt/Equity ratio of 0.31, it is low on debt and has a lower P/E than competitors in its industry. The bank is earning a 26.90% return on its interest. The bank’s net margin also looks to be increasing in the past 12 months being now at 17.40% (ttm)
On its balance sheet, cash and accounts receivable been increasing over the past 2 years while debt/equity has been decreasing over the past 2 years. Cash flow has been increasing over the past two years while long-term debt liabilities have been decreasing.
Sources: Morningstar.com, Finviz.com
In Guaranty’s 2013 fiscal year results net income increased from $1,944,000 in 2012 to $5,240,000 in 2013. Non-interest expense decreased by $499,000 due to received proceeds on an insurance claim related to a loss on deposit accounts that was recognized in the first quarter of 2013. The bank also reduced its nonperforming assets to $19.9 million (Dec. 31, 2013) from $22.5 million (Sept 30, 2013). This will continue to be a focus of the bank as said in their annual report. Guaranty has seen improvement in net margin and profitability given a challenging operating environment. There has also been multiple insider buying at the beginning of February (2/4/2013)
The bank has a very high P/E to growth ratio (36.60). There has also been recent selling by one insider in the company although this could prove to be nothing serious. There is weak loan demand and continued low interest rates that the bank faces. There has been a decline in loan balances and increased competition in loan pricing which has significantly elevated the challenge to improve or maintain the loan yield. Long term interest rates are also increasing which has been reducing consumer demand for long-term secondary market mortgage loans which in turn has decreased Guaranty’s non-interest based income. This mortgage interest level is expected to remain or increase higher than its current level which means that the secondary market will remain a challenge compared to income in recent quarters.
Guaranty Federal Bancshares seems to be an undervalued bank that is selling at 60% of its book value. With a price target of $30 it seems to be an attractive investment. Adding to that fact is that since the bank has been around since 1913 it has survived major economic collapses such as the Great Depression and our most recent recession. The risks attached to the bank are increased competition in loan pricing with a continued low interest rate. However they have greatly increased their net income in 2013. This stock has levelled off since a drop in its price in July 2013 but might be set for an increase due to improved performance. However with increased competition while still operating in a weak economy it will be one to keep an eye on.