On Wednesday, Mercantile Bank (NASDAQ:MBWM) Corporation (NASDAQ:MBWM) stock received an updated price target from Piper Sandler, increasing it to $53.00 from the previous $43.00. The firm sustained a Neutral rating on the stock.
The adjustment followed Mercantile Bank's second-quarter performance, which was marked by an 8% pre-provision net revenue (PPNR) upside. This was attributed to stringent cost control measures and sustained fee income.
The bank's conservative credit approach and potential for organic balance sheet growth through market share gains were highlighted as key factors in its long-term appeal. Additionally, the bank is expected to maintain above-average profitability through various economic cycles.
Despite the positive outlook, Piper Sandler noted that near-term multiple expansion above its peers is limited. The firm suggested that a more favorable view might emerge if there was a decrease in the relative valuation of the shares or a quality improvement in the loan-to-deposit (L/D) ratio, which is consistently below 100%.
Piper Sandler maintained its earnings per share estimates for 2024 and 2025 at $4.85 and $4.45, respectively. These projections imply robust return on assets (ROAs) and return on tangible common equity (ROTCE) between 1.3%-1.4% and 13%-16%. The new price target is based on a 12.0 times multiple of the firm's 2025 earnings estimate, reflecting a 2.5 times increase due to higher peer multiples.
This valuation maintains a premium to its peers, who are valued at approximately 11.0 times, justified by Mercantile Bank's superior profitability and favorable asset quality outlook.
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