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On Monday, Piper Sandler analyst Nathan Race upgraded 1st Source Corporation shares, traded on (NASDAQ:SRCE), from Neutral to Overweight and increased the price target to $72.50, up from the previous $70.00. The upgrade comes with a positive outlook on the company's financial performance for the year. According to InvestingPro data, three analysts have recently revised their earnings estimates upward for the upcoming period, reinforcing the positive sentiment around the stock.
Race highlighted that 1st Source is expected to demonstrate superior operating leverage and profitability in the current year, with projections of a 10% growth in pre-provision net revenue (PPNR) and a return on assets (ROA) of 1.6%. The analyst pointed out that the stock's current valuation, trading at 9.9 times and 9.6 times the firm's estimated earnings for 2025 and 2026 respectively, and 1.4 times the tangible book value (TBV), presents an attractive entry point compared to its peers. With a current P/E ratio of 10.74 and a market capitalization of $1.41 billion, InvestingPro's Fair Value analysis suggests the stock is currently fairly valued.
The rationale behind the upgrade is further supported by 1st Source's distinct lending verticals, which are expected to have upside growth potential this year. Additionally, the company's conservative credit profile, with an allowance for credit losses (ACL) at 2.3%, is seen as a positive factor. Race also noted that the bank's shares have historically traded at a premium compared to peers, which is expected to continue. InvestingPro data reveals the company's strong dividend history, having raised dividends for 32 consecutive years, with a current yield of 2.5%.
Piper Sandler's raised earnings per share (EPS) estimates for 2025 and 2026 are set at $5.80 and $6.00, respectively, marking an increase of 6% and 10%. This adjustment reflects higher expectations for net interest income (NII), net interest margin (NIM), and core fee income, following robust fourth-quarter results that included a 6% PPNR upside. The company maintains a strong financial position, with InvestingPro assigning it a "GOOD" Financial Health Score of 2.89, supported by solid profitability metrics.
The new price target of $72.50 represents a modest increase of $2.50 and is based on 12.5 times Piper Sandler's estimated 2025 earnings per share for 1st Source, which is slightly lower than the peer multiples. The firm maintains that the price target is consistent with a premium valuation relative to industry peers.
"In other recent news, 1st Source Corporation reported a strong earnings quarter, narrowly missing DA Davidson's estimate but surpassing the consensus estimate. The company's earnings were $1.41 per share, and their preprovision net revenue saw a notable increase, reaching $48.49 million, demonstrating effective expense management and consistent margin growth. In response to these results, DA Davidson raised its price target for the company from $62 to $64, while maintaining a Neutral rating.
Investment firm Piper Sandler also revised its outlook on 1st Source, downgrading the company from Overweight to Neutral, but increased its price target to $67.50. Piper Sandler's adjustment was due to the stock's valuation, but the firm maintains a positive outlook on 1st Source, noting its superior profitability and conservative credit profile.
In other recent developments, 1st Source reported a 6.07% increase in net income for the third quarter, totaling $34.94 million. The company's diluted net income per common share also rose by 6.82% to $1.41. Meanwhile, the Board of Directors approved a quarterly cash dividend of $0.36 per common share, marking a 12.50% increase from the previous year.
Lastly, 1st Source's capital position remains robust, with a common equity-to-assets ratio of 12.60% as of September 30. Despite a slight decrease in average deposits compared to the previous quarter, the company witnessed a 2.65% year-over-year increase."
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