On Tuesday, Piper Sandler adjusted its outlook on Midland States Bancorp (NASDAQ:MSBI), reducing the price target to $24.50 from the previous $26.00. The firm maintained a Neutral rating on the stock. The adjustment follows Midland States Bancorp's first-quarter earnings, which presented a combination of positive and negative financial indicators.
The company's pre-provision net revenue (PPNR) exceeded expectations by 12% due to an increase in core fee income and a decrease in operating expenses. However, this was counterbalanced by a rise in non-performing loans (NPLs) and an associated elevated loan loss provision (LLP). Additionally, Midland States Bancorp's net interest margin (NIM) fell short of expectations, primarily due to interest reversals.
Piper Sandler noted that while there is anticipation for improvements in non-performing assets (NPA) and net charge-offs (NCO) in the future, the bank is expected to align its forward price-to-earnings (P/E) ratio more closely with its peers through balance sheet optimization efforts as non-core assets run-off. The firm's stance remains Neutral, citing the long-term horizon required for Midland States Bancorp to achieve profitability comparable to its peers and the need for consistent credit improvement.
Moreover, Piper Sandler has revised its earnings per share (EPS) estimate for 2024 downward to $2.80 from $3.10, attributing this change to the higher LLP and reduced net interest income (NII) in the first quarter. Nevertheless, the 2025 EPS forecast remains at $3.05.
The new price target reflects a multiple of 8.0 times the firm's 2025 estimated EPS, a decrease from the prior multiple of 8.5 times, and continues to represent a discount to the peer group average of 8.7 times, due to the anticipated ongoing credit challenges following the first quarter's performance.
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