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Investing.com - Piper Sandler has lowered its price target on Merchants Bancorp (NASDAQ:MBIN) to $41.00 from $42.00 while maintaining an Overweight rating on the stock. The bank’s shares, currently trading at $31.50, have declined 12% in the past week. According to InvestingPro analysis, the stock appears undervalued, trading at just 6.9 times earnings.
The price target reduction follows elevated loan loss provisions and net charge-offs in the second quarter, which were primarily tied to previously identified loans impacted by fraud. These problematic loans were originated through brokers several years ago, a practice Merchants Bancorp discontinued in 2022. InvestingPro data shows the company maintains a Fair financial health rating, with additional metrics and insights available to subscribers.
Piper Sandler expects credit costs to remain elevated in the third quarter, though likely less severe than in the second quarter. The firm anticipates asset quality concerns should diminish starting in the fourth quarter of 2025.
The research firm has reduced its 2025 and 2026 operating earnings per share estimates for Merchants Bancorp to $3.35 (a 31% reduction) and $4.80 (an 8% reduction), respectively, reflecting more conservative loan loss provision and net interest income assumptions.
Despite these concerns, Piper Sandler remains positive on Merchants Bancorp, noting the stock trades at only 0.88 times tangible book value, and citing the company’s highly efficient, complementary and niche businesses that should drive continued strong tangible book value growth. The company has maintained dividend payments for nine consecutive years, with an 11% dividend growth in the last twelve months.
In other recent news, Merchants Bancorp reported its second-quarter earnings, which fell short of analyst expectations. The bank posted earnings per share of $0.60, significantly missing the projected $1.12. Despite this, the company’s revenue was $179.2 million, surpassing the consensus estimate of $161.1 million. Net income for the quarter was $38 million, a 50% decrease from the same period last year and 35% lower than the previous quarter. Increased provisions for credit losses related to multi-family property values and mortgage fraud investigations were cited as significant factors impacting the results. Following these developments, Raymond (NSE:RYMD) James adjusted its price target for Merchants Bancorp, lowering it to $40 from the previous $41, while maintaining an Outperform rating. The adjustment was attributed to the bank’s increased net charge-offs and larger loss provisions. These recent developments reflect the challenges Merchants Bancorp is currently facing.
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