In the 18 months before our research publication on First Guaranty Bancshares (FGBI), only around half of the FGBI stock price movements could be explained by reference to movements in three key macroeconomic indicators: crude oil prices, Treasury bond prices and the S&P500 Index.  Since September 2016, almost 90% of the daily movement in FGBI's stock price can be explained by just these three factors in a multiple regression model.  In fact, all of the key macroeconomic drivers have been highly correlated since September 2016 (see correlation chart, below) 

(note: the "kre" variable represents the regional banking ETF with the same ticker)

This, in turn, means that the equity market is still undervaluing FGBI relative to its peers.  It is encouraging to see the post-September 2016 FGBI stock price movements reflect developments in oil prices, interest rates and stock prices, however, FGBI has not (yet) closed the gap with its intrinsic valuation.

If, as some market commentators are speculating, oil prices start to decline, dragging with it both the S&P500 Index and Treasury rates, we could see an associated decline in the FGBI stock price.  This is assuming the recent high correlation (adjusted R-squared ~90%) continues into the future.  Depending on the extent of the FGBI stock price decline, this should not change the fact that there is a material margin of safety embedded in the current FGBI stock price.  If history is any guide, FGBI may lag behind these three macro variables during a bear market.