Home Bancshares Inc. Makes a Good Acquisition (HOMB)

Jon Arfstrom and Andy Hedberg of RBC believe that the Home Bancshares Inc. (NASDAQ: HOMB) acquisition of Florida-based Old Southern Bank is a low risk market extension that enhances core funding and that the loan base will increase overall franchise value. Home Bancshares will assume $341 million in assets and $326 million of liabilities, including $320 million of deposits and $275 million in total loans. Home Bancshares will not assume any assets or liabilities of the holding company.

The acquisition is expected to be modestly accretive to net income, with an initial bargain purchase gain, and longer term accretion to net interest income. The capital ratios remain very healthy after the acquisition. These analysts believe this is a low risk transaction that expands the company's branch network, adds a valuable funding base and enhances overall franchise value. This acquisition is consistent with management's focus on using recently raised capital to pursue acquisitions in and around their Florida and Arkansas markets. They believe the company will continue to pursue assisted transactions in these markets and note that Home Bancshares remains strongly capitalized with plenty of dry powder to execute on such opportunities.

RBC is increasing their 2010 EPS estimate by $0.24 to $1.54 to reflect primarily the assumed bargain purchase gain and, secondarily, the longer term economics of the transaction. They are also increasing their 2011 EPS estimate by $0.08 to $1.58. Their price target of $28 (previously $27) is 18x the 2011 EPS estimate and 1.7x book value.

HOMB shares are up $.04 to $26.03 in early trading today. A year ago share prices were hovering around $16, and they’ve shown steady growth since then.