Why weaker profitability at Simmons First National (SFNC) is back in focus

Recent commentary on Simmons First National (SFNC) has highlighted a 6.7% annual decline in earnings per share over the past five years, along with expectations for a higher efficiency ratio. These factors are bringing profitability pressures back into focus for investors.

Despite concerns around profitability, Simmons First National's recent share price momentum has been strong. The 30 day share price return is 13.01% and the 90 day share price return is 20.50%, while the 1 year total shareholder return is slightly negative at 0.65%. This hints that recent optimism around risk and earnings expectations is still relatively new.

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With earnings per share sliding 6.7% a year and profitability under pressure, yet the shares trading at a roughly 38% intrinsic discount and only a small gap to analyst targets, is there a genuine value opportunity here, or is the market already pricing in better days ahead?

Most Popular Narrative: 4.3% Undervalued

With Simmons First National last closing at $21.81 against a widely followed fair value estimate of $22.80, the current setup leans slightly toward undervaluation while hinging on a specific growth and profitability roadmap.

The company is actively attracting and retaining top talent while capitalizing on industry dislocation and M&A activity in key markets, improving its competitive positioning and supporting future business expansion and earnings growth.

Continued remixing of the loan portfolio toward higher-yielding variable-rate loans and the repricing of legacy fixed-rate loans at higher rates present a tailwind for net interest margin expansion, enhancing core profitability.

Want to see what is sitting behind that fair value gap? The narrative leans heavily on fast growing revenues, rising profit margins and a lower future earnings multiple. Curious what combination of growth and discount rate is needed to reach that $22.80 figure?

Result: Fair Value of $22.80 (UNDERVALUED)

However, you still need to watch for competitive loan pricing and the commercial real estate portfolio, which could pressure margins and weaken the earnings path behind that fair value story.

Build Your Own Simmons First National Narrative

If you are not fully sold on this view or prefer to weigh the numbers yourself, you can build a custom Simmons First National story in just a few minutes and Do it your way.

A great starting point for your Simmons First National research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.