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On Monday, Keefe, Bruyette & Woods adjusted its price target for First Merchants (NASDAQ:FRME) shares, raising it to $45.00 from the previous $43.00. The firm has maintained an Outperform rating on the stock, signaling continued confidence in its performance.
The revision followed First Merchants' recent earnings report, where the company posted earnings of $0.68 per share. This figure fell below expectations, primarily due to an increased provision for a single credit, which led to higher than anticipated net charge-offs (NCOs). However, stronger pre-provision net revenue (PPNR) provided some balance to the earnings miss, surpassing expectations with help from lower expenses and higher fee income.
The bank's loan growth was also a highlight of the report, with a notable 6% linked-quarter annualized (LQA) growth. This increase was largely attributed to commercial and industrial (C&I) loans, indicating a rebound in this area for the second quarter.
Despite facing a slightly smaller earning asset base and a bit of margin pressure anticipated as the market looks towards 2025, the outlook for fee income and expense management appears positive. As a result, while Keefe, Bruyette & Woods has fine-tuned its model, leading to a slight reduction in the earnings estimate for 2025 by five cents, the firm's 2024 estimate remains unchanged.
The revised price target of $45 reflects these adjustments and reiterates Keefe, Bruyette & Woods' optimistic stance on First Merchants' shares, suggesting that the firm believes the bank's stock still has room to grow.
In other recent news, First Merchants Corporation reported a robust second quarter, showcasing significant growth in net interest income and non-interest income. Despite a substantial provision expense due to a deteriorating business loan, the company demonstrated strong loan growth, particularly in the commercial sector.
Piper Sandler and Stephens have both increased their price targets on First Merchants shares, maintaining an Overweight rating. These adjustments followed an evaluation of the company's second-quarter performance and future prospects.
Piper Sandler's raised target reflects expectations of First Merchants' continued organic balance sheet growth and a robust profitability profile. The firm also kept its 2024 estimated operating earnings per share (EPS) for First Merchants at $3.35 and raised its 2025 estimate to $3.55. Stephens' revised target comes after the company's pre-tax, pre-provision net revenue exceeded expectations by 13%.
InvestingPro Insights
First Merchants Corporation (FRME) has demonstrated a resilient financial performance, with a consistent track record of dividend growth, now marking 12 years of consecutive increases. This is a testament to the company's commitment to returning value to shareholders, a factor that may resonate with income-focused investors. Additionally, analysts have revised their earnings upwards for the upcoming period, reflecting optimism about the company's future profitability. This aligns with Keefe, Bruyette & Woods' positive outlook and recent price target adjustment.
From a valuation standpoint, First Merchants' P/E ratio stands at 13.03, with an adjusted P/E ratio for the last twelve months as of Q2 2024 at 12.79, indicating a potentially attractive entry point compared to historical standards. The bank's strong price performance is also noteworthy, with a 24.21% return over the last month and a 36.38% return over the past year, suggesting robust investor confidence that may be worth considering for those looking to capitalize on momentum.
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