Piper Sandler maintains First Merchants stock with $55 target

On Thursday, Piper Sandler reaffirmed its positive stance on First Merchants Corporation (NASDAQ:FRME), maintaining an Overweight rating and a $55.00 price target. The firm also continued to endorse First Merchants as a top pick for the year 2025. The bank, which has maintained dividend payments for 37 consecutive years and raised them for 13 straight years, currently offers a 3.4% dividend yield. According to InvestingPro data, six analysts have recently revised their earnings estimates upward for the upcoming period.

First Merchants has exhibited a year-to-date performance that outpaces the broader NASDAQ BANK Index, with shares increasing by 4.4% compared to the index’s decline of 3.3%. The stock has shown strong momentum, delivering a 25% total return over the past year. Piper Sandler’s analyst highlighted First Merchants’ robust outlook for operating leverage, driven by solid organic balance sheet growth and core fee income, as well as expectations for at least stable net interest margin (NIM), minimal increases in operating expenses, and likely benign credit quality.

The analyst pointed out that First Merchants’ current valuation is still discounted when compared to its peers. The stock is currently trading at 10.5 times and 10.0 times the firm’s 2025 and 2026 estimated earnings per share (EPS), respectively, and at 1.6 times tangible book value (TBV), while its peers trade at 11.9 times and 10.9 times EPS and 1.8 times TBV. This valuation is seen as an attractive entry point for investors, with expectations that First Merchants’ multiples will likely expand to align with or exceed those of its peers. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, with additional insights available in the comprehensive Pro Research Report.

Additionally, the company’s increasing excess capital flexibility is expected to potentially support more proactive returns to shareholders, including share buybacks. The analyst also mentioned that mergers and acquisitions (M&A) do not pose a significant risk, given the management’s highly selective approach to such activities.

The recent discussions with First Merchants’ management have reinforced Piper Sandler’s confidence that the company is among the best positioned to outperform in the current year. The endorsement comes as a strong signal of the company’s expected continued success and operational strength.

In other recent news, First Merchants Corporation reported its fourth-quarter earnings for 2024, surpassing analysts’ expectations with an earnings per share (EPS) of $1.00, adjusted from $1.10, against a forecast of $0.89. The company’s revenue also exceeded projections, coming in at $177.11 million compared to the expected $167.76 million. Additionally, First Merchants Corporation announced the redemption of $30 million in 4.75% Fixed-to-Floating Subordinated Notes due 2029, as part of its financial management strategy. The redemption is scheduled for March 18, 2025, and reflects the company’s adherence to financial obligations.

Moreover, First Merchants introduced a 2025 Senior Management Incentive Compensation Program, aiming to align executive interests with the company’s financial performance. Under this program, executives, including CEO Mark K. Hardwick, could earn significant bonuses based on performance goals. The company has also established a Clawback Policy to recover payments if based on materially inaccurate financial statements. These developments come as part of First Merchants’ efforts to maintain strong corporate governance and incentivize its leadership team.

The company also completed technology platform upgrades and branch network reductions, demonstrating strategic advancements. Analysts from firms such as Hovde Group and Stephens Inc. have shown interest in First Merchants’ capital management and asset repricing dynamics, with discussions on future loan growth and deposit cost management. These recent developments indicate First Merchants’ focus on financial health and strategic direction for 2025.

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