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On Tuesday, Piper Sandler raised the price target for HomeStreet (NASDAQ:HMST) shares to $14.00, up from the previous $10.00, while maintaining a Neutral rating on the stock. The company’s shares, currently trading at $11.74, have shown remarkable momentum with a 27.19% surge over the past week. According to InvestingPro analysis, the stock’s recent rally has pushed it into overbought territory. The adjustment follows the announcement of a reverse merger in which HomeStreet will be acquired by Merchants Bancorp (NASDAQ:MBIN) (MCHB) in an all-stock transaction valued at approximately $300 million, or roughly $15.50 per share.
The deal, which represents a 75% premium over HomeStreet’s tangible book value (TBV) and a 67% premium over the market price, will result in a pro-forma ownership split of 92% for MCHB and 8% for HomeStreet shareholders. With a current market capitalization of $222.13 million and a weak financial health score according to InvestingPro, this merger could provide much-needed stability for HomeStreet’s operations. According to Piper Sandler, this acquisition did not come as a surprise, as a sale of HomeStreet was anticipated, although the final terms were slightly more favorable than expected.
The transaction is projected to be 23% accretive to HomeStreet’s 2026 estimated consensus earnings per share (EPS), with anticipated cost savings of 42% and balance sheet repositioning. The raised price target to $14 reflects the purchase price with a 10% discount applied, accounting for the period until the transaction’s expected closure.
The reverse merger between HomeStreet and Merchants Bancorp is seen as a strategic move that will reshape the combined entity’s market presence and financial outlook. While InvestingPro data shows HomeStreet has been quickly burning through cash, analysts expect the company to return to profitability this year, with projected earnings growth. Discover 8 more exclusive InvestingPro Tips and comprehensive financial analysis in our detailed Pro Research Report. The deal is structured such that MCHB will be the accounting acquirer, and HomeStreet will issue new shares to facilitate the merger. The financial benefits of the merger, including the significant cost savings and balance sheet optimization, are expected to contribute positively to HomeStreet’s future earnings.
In other recent news, HomeStreet Inc . reported a net loss of $123.3 million, or $6.54 per share, for the fourth quarter of 2024. This figure includes a core net loss of $5.1 million, or $0.27 per share, which missed the expected earnings per share forecast of $0.23. Revenue for the quarter was $40.31 million, falling short of the $41.31 million forecast. Additionally, HomeStreet announced a strategic merger with Mechanics Bank, where HomeStreet will be the legal acquirer, and Mechanics Bank will be the accounting acquirer and surviving entity. Analysts from Keefe, Bruyette & Woods maintained a Market Perform rating on HomeStreet with a steady price target of $12.00, highlighting the merger’s potential positive impact. The merger is seen as beneficial following the previously terminated merger with FSUN, and it may lead to potential multiple expansion. HomeStreet’s management expressed optimism about returning to profitability in the first half of 2025, focusing on strategic balance sheet management and cost reduction.
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