Rating Update: Stock Rating C-High Neutral (7/19/19)-Ameris Bancorp (ABCB).

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BUSINESS

Ameris Bancorp operates as the holding company for Ameris Bank that provides banking services to retail and commercial customers primarily in Georgia, Alabama, Florida, and South Carolina. The company operates through five segments: Banking Division, Retail Mortgage Division, Warehouse Lending Division, Small Business Administration Division, and Premium Finance Division. It offers commercial and retail checking accounts, regular interest-bearing savings accounts, money market accounts, individual retirement accounts, and certificates of deposit.
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INVESTMENT RATING

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Reflecting future returns on capital that are forecasted to exceed the cost of capital, ABCB is expected to continue to be a Value Builder.

Ameris Bancorp has a current Value Trend Rating of C (High Neutral).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Ameris Bancorp has a very high Appreciation Score of 90 but a poor Power Rating of 26, and the High Neutral Value Trend Rating results.

Ameris Bancorp’s stock is selling well below targeted value. The current stock price of $37.78 compares to targeted value 12 months forward of $101.
Ameris Bancorp’s very high appreciation potential results in an appreciation score of 90 (only 10% of the universe has greater appreciation potential.)
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Ameris Bancorp has a Power Rating of 26. (ABCB’s poor Power Rating indicates that it only has a higher likelihood of achieving favorable investment performance over the near to intermediate term than 26% of companies in the universe.)
Factors contributing to this poor Power Rating include: the trend in ABCB’s earnings estimates has been unfavorable in recent months; recent price action has been slightly unfavorable; and is in a slightly weakened position current.

INVESTMENT PROFILE

ABCB’s financial strength is exceptional. Financial strength rating is 100.
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Relative to the S&P 500 Composite, Ameris Bancorp has moderate Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that ABCB is lower risk. Relative weaknesses include: low forecasted profitability, low historical profitability, and high stock price volatility. ABCB’s valuation is low: low dividend yield, low P/E ratio, and low price/book ratio. ABCB has unusually low market capitalization.

CURRENT SIGNALS

Ameris Bancorp’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.

Ameris Bancorp’s current technical position is very weak. The stock price is in a 0.9 month down move. The stock has declined 16.1% from its prior high. The stock price is below its 200 day moving average which is in a downtrend. The stock has just fallen below its 200 day moving average.

ALERTS

Ameris Bancorp (NASDAQ: ABCB) has recently experienced significant negative changes in investment behavior: the stock’s recent price decline challenged its longer term uptrend.
Important positive changes in fundamentals have recently occurred for Ameris Bancorp (NASDAQ: ABCB): significant quarterly earnings acceleration occurred, and significant quarterly sales acceleration occurred.
The stock is currently rated C.
Ameris Bancorp (NASDAQ: ABCB) stock closed at $0.13 on 7/19/19 after a major increase of 19.9%. However, below average trading volume at 75% of normal accompanied the advance. The stock has declined -2.1% during the last week and has been weak relative to the market over the last nine months.

CASH FLOW

In 2018, Ameris Bancorp generated a very significant increase in cash of +$359.7 million (+109%). Sources of cash were much larger than uses. Cash generated from 2018 EBITDA totalled +$266.7 million. Non-operating uses consumed -$95.7 million (-36% of EBITDA). Cash taxes consumed -$30.5 million (-11% of EBITDA). Re-investment in the business amounted to -$206.3 million (-77% of EBITDA). On a net basis, debt investors withdrew -$105.4 million (-40% of EBITDA) while equity investors contributed +$530.8 million (+199% of EBITDA).
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Ameris Bancorp’s Non-operating Income, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Ameris Bancorp Peer Group. (Since 2012 Non-operating Income, %EBITDA has decelerated very sharply.) In most years, Ameris Bancorp was in the third quartile and lower quartile. Currently, Ameris Bancorp is at the lower quartile at -36% of EBITDA (-$95.7 million).

Ameris Bancorp’s Cash Taxes, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Ameris Bancorp Peer Group. In most years, Ameris Bancorp was in the second quartile and top quartile. Currently, Ameris Bancorp is at median at -11% of EBITDA (-$30.5 million).

Ameris Bancorp’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Ameris Bancorp Peer Group. In most years, Ameris Bancorp was in the top quartile and lower quartile. Currently, Ameris Bancorp is slightly above median at -77% of EBITDA (-$206.3 million).

Ameris Bancorp’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Ameris Bancorp Peer Group. In most years, Ameris Bancorp was in the lower quartile and top quartile. Currently, Ameris Bancorp is substantially below median at -40% of EBITDA (-$105.4 million).

Ameris Bancorp’s Equity Investors, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Ameris Bancorp Peer Group. (Since 2016 Equity Investors, %EBITDA has experienced a very sharp recovery.) In most years, Ameris Bancorp was in the second quartile and top quartile. Currently, Ameris Bancorp is at the upper quartile at +199% of EBITDA (+$530.8 million).

Ameris Bancorp’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Ameris Bancorp Peer Group. (Since 2016 Change in Cash, %EBITDA has experienced a very sharp recovery.) In most years, Ameris Bancorp was in the top quartile and lower quartile. Currently, Ameris Bancorp is upper quartile at +135% of EBITDA (+$359.7 million).
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Ameris Bancorp’s Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Ameris Bancorp Peer Group. (Since 2016 Cash, %Revenue has experienced a very sharp recovery.) In most years, Ameris Bancorp was in the top quartile and second quartile. Currently, Ameris Bancorp is at the upper quartile at +130%.

PROFITABILITY

Ameris Bancorp’s return on equity has improved significantly since 2011 but it experienced a very sharp decline after the 2016 high.
This significant improvement was due to very strong positive trend in pretax operating return offset by very strong negative trend in non-operating factors.
The productivity of Ameris Bancorp’s assets declined over the full period 2009-2019: asset turnover has experienced a downtrend.
More than offsetting this trend, however, pretax margin enjoyed a very strong overall uptrend that stabilized from the 2015 level.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
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Ameris Bancorp’s return on equity is above median (9.0%) for the four quarters ended March, 2019.
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Operating performance (pretax return on assets) is above median (1.4%) reflecting asset turnover that is at median (0.05X) and slightly above median pretax margin (29.0%).
Tax “keep” rate (income tax management) is at median (79.7%) resulting in after tax return on assets that is above median.
Financial leverage (leverage) is below median (7.79X).

GROWTH RATES

There are no significant differences between Ameris Bancorp’s longer term growth and growth in recent years.
Ameris Bancorp’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.

Annual revenue growth has been 5.6% per year.

Total asset growth has been 6.5% per year.

Annual E.P.S. growth has been 26.9% per year.

Equity growth has been 13.7% per year. (More recently it has been 19.3%.)
No consensus growth rate forecast is available for Ameris Bancorp.
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Relative to the Ameris Bancorp Peer Group, Ameris Bancorp’s historical growth measures are generally second quartile. Equity growth (13.7%) has been upper quartile. Total asset growth (6.5%) has been slightly above median. Revenue growth (5.6%) has been above median. E.P.S. growth (26.9%) has been substantially above median.

Consensus growth forecast is unavailable.
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PRICE HISTORY

Over the full time period, Ameris Bancorp’s stock price performance has been variable and in line with the market. Between September, 2008 and July, 2019, Ameris Bancorp’s stock price rose +161%; relative to the market, this was a +2% gain. Significant price moves during the period: 1) February, 2016 – May, 2018: +106%; 2) October, 2012 – November, 2015: +220%; and 3) December, 2008 – March, 2009: -60%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of -25.7% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through June, 2019 of -25.7% is substantially below median relative to Ameris Bancorp Peer Group.

Current 5-year total return performance of 13.7% is above median relative to the S&P 500 Composite.
Through June, 2019, with above median current 5-year total return of 13.7% relative to S&P 500 Composite, Ameris Bancorp’s total return performance is substantially above median relative to Ameris Bancorp Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, ABCB’s overall valuation is quite low. The highest factor, the ratio of enterprise value/revenue, is slightly above median. Price/earnings ratio is slightly below median. Ratio of enterprise value/earnings before interest and taxes is lower quartile. Price/equity ratio is lower quartile. The lowest factor, the ratio of enterprise value/assets, is lower quartile.

Relative to Ameris Bancorp Peer Group, ABCB’s overall valuation is normal. The highest factor, the price/equity ratio, is upper quartile. Price/earnings ratio is upper quartile. Ratio of enterprise value/revenue is slightly below median. Ratio of enterprise value/assets is below median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is lower quartile.
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Ameris Bancorp has a minor value gap compared to the median valuation. For ABCB to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 3.52X to 3.64X. If ABCB’s ratio of enterprise value/revenue were to rise to 3.64X, its stock price would be lower by $1 to $39.
For ABCB to hit lower quartile valuation relative to the Ameris Bancorp Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 3.52X to 2.57X. If ABCB’s ratio of enterprise value/revenue were to fall to 2.57X, its stock price would decline by $-8 from the current level of $38.

VALUE TARGETS

Reflecting future returns on capital that are forecasted to exceed the cost of capital, ABCB is expected to continue to be a Value Builder.
Ameris Bancorp’s current Price Target of $109 represents a +188% change from the current price of $37.78.
This very high appreciation potential results in an appreciation score of 90 (only 10% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 90, the low Power Rating of 26 results in an Value Trend Rating of C.
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Ameris Bancorp’s current Price Target is $109 (+22% from the 2018 Target of $89 and +188% from the 07/19/19 price of $37.78). This rise in the Target is the result of a +27% increase in the equity base and a -4% decrease in the price/equity multiple. The forecasted increase in growth has a large positive impact on the price/equity multiple and the forecasted increase in return on equity has a slight positive impact as well. More than offsetting these Drivers, the forecasted increase in cost of equity has a very large negative impact.
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PTR’s return on equity forecast is 12.4% — in line with our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2010 and 2018. The current forecast is well above the 2010 low of 4%.

PTR’s growth forecast is 17.0% — slightly above our recent forecasts. Forecasted growth enjoyed a dramatic, variable increase between 2010 and 2018. The current forecast is significantly above the 2013 low of 2%.

PTR’s cost of equity forecast is 8.9% — in line with recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2010 and 2018. The current forecast is above the 2012 low of 4.9%.
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At Ameris Bancorp’s current price of $37.78, investors are placing a negative value of $-0 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 12.0% per year, and a return on equity of 12.1% versus a cost of equity of 7.8%.
PTR’s 2020 Price Target of $109 is based on these forecasts and reflects an estimated value of existing assets of $43 and a value of future investments of $66.

About John Lafferty 44922 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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