Raymond James maintains $50 target on First Merchants stock

On Thursday, Raymond (NSE:RYMD) James confirmed its Outperform rating on First Merchants (NASDAQ:FRME) with a steady price target of $50.00. According to InvestingPro data, the stock currently trades at an attractive P/E ratio of 12x and has demonstrated strong dividend reliability, maintaining payments for 37 consecutive years. The confirmation follows the announcement that First Merchants’ Board of Directors has approved a new share repurchase program. This new initiative allows for the buyback of up to 2.927 million shares of common stock, capped at a total value of $100 million. The share repurchase program, which does not have a set expiration date, is set to replace the company’s 2021 program and accounts for approximately 5% of First Merchants’ total outstanding common shares. With a market capitalization of $2.4 billion and a price-to-book ratio of 1.05, InvestingPro analysis suggests the stock is currently undervalued relative to its Fair Value.

First Merchants re-entered the share repurchase market in 2024, where it completed repurchases of around 1.6 million shares, totaling about $56 million in aggregate value. During their fourth-quarter earnings call in January 2025, management indicated their willingness to consider further share repurchases if the stock traded below historical price-to-earnings (P/E) multiples and if the tangible common equity (TCE) ratio stayed above the 8.0% internal target, which stood at 8.81% at the end of the fourth quarter of 2024.

Given the recent downturn in bank stock performance, Raymond James analysts believe that management has likely been active in share repurchases during the first quarter of 2025. The firm’s projection included an assumption of 0.25 million shares repurchased, which they now consider to be a conservative estimate. The new repurchase program announcement may indicate that First Merchants was approaching the completion of its 2021 share repurchase program, which had $18.4 million remaining as of the fourth quarter of 2024.

The announcement is seen as providing a supportive baseline for First Merchants’ stock in a volatile market environment. Raymond James’ positive stance on the stock is primarily based on an improving fundamental outlook for the company. This outlook is supported by InvestingPro data showing six analysts revising their earnings upward for the upcoming period, with the stock delivering a robust 24% total return over the past year. For deeper insights into First Merchants’ valuation and growth prospects, investors can access the comprehensive Pro Research Report, which provides detailed analysis of the company’s financial health and market position.

In other recent news, First Merchants Corporation has announced a new stock repurchase program, allowing the company to buy back up to 2.927 million shares, approximately 5% of its outstanding common stock, with a total investment cap of $100 million. This initiative, replacing a previous program from January 2021, is seen as a strategic move to enhance shareholder value by potentially increasing earnings per share. Analysts at Keefe, Bruyette & Woods have maintained an Outperform rating for First Merchants, with a price target of $52, highlighting a positive outlook on the company’s financial strategies. Meanwhile, Piper Sandler has reaffirmed an Overweight rating with a $55 price target, citing the company’s strong operating leverage and attractive valuation compared to peers.

Additionally, First Merchants plans to redeem $30 million in Subordinated Notes by March 2025, aligning with its financial management strategy. The company has also introduced a 2025 Senior Management Incentive Compensation Program to align executive interests with financial performance, offering cash payments based on specific performance goals. These developments reflect First Merchants’ ongoing efforts to strengthen its financial position and governance, as outlined in recent filings with the Securities and Exchange Commission.

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