We have been covering South State Corporation (SSB) since July 2015, and while the bank has made substantial gains in revenues and earnings and increased its quality metrics since then, the stock’s price has remained stubbornly low, suggests Douglas Gerlach, editor of SmallCap Informer.
With the recent market pullback in place, and a major merger set to complete in 2020, the bank’s current yield and growth prospects make it worth another look.
Founded in 1933, South State Corporation is the largest bank holding company headquartered in South Carolina, and following the merger with CenterState Bank expected to close in 2020 will be the eighth largest independent bank headquartered in the Southeast.
(Editor's note: Doug Gerlach will be participating in the MoneyShow Virtual Event. On Monday, May 11th, Doug will be discussing "Investing in Stocks During Turbulent Times". Register for FREE.)
Much of South State’s growth has come from acquisitions, but organic growth has also been robust, and we expect this growth to continue. Analysts are looking for 12% annual EPS growth over the next few years, fueled by the continually improving Southern economy and rising interest rates.
Both interest and non-interest income will likely generate healthy growth, with continuing improvements in operational efficiency driving EPS growth faster than sales. We are targeting minimal average growth of EPS and revenues of 10% a year through 2024. We expect 2020 to be a down year, but recovery should come relatively quickly for South State.
Based on EPS in five years of $7.78 and a P/E ratio of 15.0, a future high price of $116 is indicated. Our projected low price of $48 is calculated using a low P/E of 10 multiplied by trailing 12-month EPS of $4.83.
The lowest the stock reached in 2020 was $49, so this price is a realistic low price. From the current price of $57, the reward- to-risk ratio is 7.1 to 1, with a projected 17.4% annualized return (including an average yield of 2.0%.
