First Bancshares Inc (FBMS) Is On Sale

If management terminates the M&A strategy and First Bancshares Inc’s profits went to dividends rather than acquisitions, First Bancshares Inc’s dividend yield could be 2.29%, or roughly the same yield as the 10 year Treasury bond, assuming a 30% payout ratio. If management raises the dividend yield above 2%, we believe First Bancshares Inc’s valuation would increase to 1.2 times book value, or $18.3 per share.

Because First Bancshares Inc is a microcap stock with little liquidity, its shares are on sale versus its better known peers. The bank’s earnings will continue to grow as a recovering Gulf South economy spurs loan growth and reduces the bank’s non-performing loans. Rising long interest rates will help too. The steepening yield curve should increase the bank’s ROE closer to 10% from its current 8.6%.

First Bancshares Inc (NASDAQ:FBMS)’s Q2 earnings were solid. The bank beat both revenue and EPS expectations, with an EPS of $0.39 and revenues of $9.21 million. EPS rose 34% year over year while revenue increased 17.3% year over year. Total loans increased 2% in the quarter while nonperforming assets decreased $0.3 million from March 31, 2015. If the improving trend continues, First Bancshares Inc will be a $20 stock by 2016.

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