On Monday, Piper Sandler adjusted its stance on MidWest One Financial (NASDAQ:MOFG), reducing its stock price target to $22 from $24, while maintaining a Neutral rating on the stock. The adjustment comes after an evaluation of the company's first-quarter performance and future earnings expectations.
The financial institution, which recently saw the completion of its acquisition of DNVB, reported first-quarter results that included an 11% positive pre-provision net revenue (PPNR) variance against consensus estimates. Piper Sandler acknowledged the company's solid core results despite the quarter being marked by significant events.
MidWest One's strategic plan, led by CEO Chip Reeves, has been commended for its progress, especially considering the addition of significant talent aimed at expanding the company's high-touch model throughout its core Midwestern markets. Still, Piper Sandler remains neutral on the stock due to MidWest One's below-average return outlook.
The firm noted that the current short-term interest rate environment, which is expected to remain higher for an extended period, could delay MidWest One's ability to achieve profitability comparable to its peers. This is largely because of the company's balance sheet, which is sensitive to interest rate changes.
As a result of these factors, Piper Sandler has revised its earnings per share (EPS) estimates for MidWest One for the years 2024 and 2025. The new estimates stand at $2.05 and $2.70, down from the previous $2.15 and $2.85, respectively.
The revised stock price target reflects a multiple of 8.0 times the firm's 2025 estimated earnings per share, a decrease of 0.5 times, taking into account lower peer multiples. The price target also represents a moderate discount to the peer group average of 8.9 times, justified by MidWest One's sub-optimal profitability outlook.
InvestingPro Insights
As investors digest Piper Sandler's revised outlook on MidWest One Financial, real-time data from InvestingPro offers further context to the company's financial health and market performance. With a market capitalization of $321.47 million and a P/E ratio that stands at 14.09, MidWest One shows a mix of stability and challenges.
The adjusted P/E ratio for the last twelve months as of Q1 2024 is slightly lower at 13.38, hinting at a potentially undervalued stock. Despite a concerning -17.42% revenue decline in the last twelve months as of Q1 2024, the quarterly revenue growth paints a more positive picture with a 13.38% increase in Q1 2024.
InvestingPro Tips highlight that MidWest One has a commendable track record of raising its dividend for 13 consecutive years and maintaining dividend payments for 17 years. However, analysts are keen to point out the company's weak gross profit margins and a notable price decline over the last three months. Yet, the expectation that MidWest One will remain profitable this year, coupled with profitability over the last twelve months, offers a silver lining for potential investors.
For those considering an in-depth analysis, InvestingPro provides additional insights on MidWest One Financial. There are more InvestingPro Tips available, which could help investors make more informed decisions. To access these insights and benefit from the expertise of InvestingPro, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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