On Monday, Piper Sandler adjusted its price target for Alerus Financial Corp (NASDAQ: NASDAQ:ALRS), reducing it to $23.50 from the previous $24.00, while maintaining a Neutral rating on the stock. The financial institution reported what was considered solid first-quarter results, driven by robust growth in both loans and core deposits. This growth led to an expansion in the core net interest margin (NIM), excluding the Bank Term Funding Program (BTFP) arbitrage trade, which surpassed expectations.
The firm anticipates that Alerus Financial's NIM will continue to rise in the near term due to the redeployment of excess liquidity following the balance sheet repositioning in the fourth quarter. Additionally, more significant expansion is expected as federal rate cuts are implemented. Piper Sandler also expressed a positive outlook on Alerus Financial's potential to grow its fee income businesses, which are considered unique and command higher multiples due to being less capital intensive.
Alerus Financial's recent initiatives are expected to gain more traction, particularly after the addition of key leadership figures. These initiatives are geared towards expanding tangential revenue opportunities. Despite these positive developments, the firm believes that these factors are already factored into the stock's premium valuation.
Piper Sandler has chosen to maintain its earnings per share (EPS) estimates for Alerus Financial at $1.55 for 2024 and $1.75 for 2025. The revised price target of $23.50 represents a slight decrease of $0.50 and is based on a 13.5 times multiple of the firm's 2025 earnings estimate. This adjustment reflects a 0.5 times reduction due to lower peer multiples, yet it still positions Alerus Financial at a premium compared to its high fee-generating peers, who are valued at approximately 10.1 times.
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