On Wednesday, Piper Sandler shifted its stance on SmartFinancial (NASDAQ:NYSE:SMBK), elevating the bank holding company's stock from Neutral to Overweight. Accompanying this upgrade, the firm also nudged the price target upward to $26.00 from the previous $25.00. The revision reflects a more positive assessment of the company's financial prospects, despite a slight reduction in earnings estimates for the years 2024 and 2025.
Piper Sandler's revised earnings projections are now set at $1.80 for 2024 and $2.08 for 2025, a slight decrease from the former estimates of $1.83 and $2.20, respectively. This adjustment takes into account an anticipated rise in expenses. However, the firm's outlook on SmartFinancial has improved due to several key factors, including an inflection point in the net interest margin (NIM), robust growth, and a deposit mix that is outperforming expectations.
The analyst highlighted that SmartFinancial's forward revenue guidance, primarily driven by net interest income (NII), could offer potential upside to their estimates. At 96% of tangible book value per share (TBVPS), the analyst finds the stock's valuation appealing. The company's proactive stance on share buybacks, as noted by the analyst, also supports a more aggressive investment approach.
The price target increase to $26.00 is now based on approximately 1.1 times the projected TBVPS for the following year, shifting the valuation focus from the previous price-to-earnings (P/E) multiple to TBVPS. This change is due to the stock's current valuation below book value, which is seen as a primary factor in near-term share appreciation.
According to Piper Sandler, the guidance provided by SmartFinancial could lead to a 5%-10% increase over their earnings estimates, presenting what they consider to be an attractive risk/reward dynamic for investors.
InvestingPro Insights
Piper Sandler's positive outlook on SmartFinancial is further complemented by real-time data and insights from InvestingPro. With a market capitalization of $344.72 million and a P/E ratio that has remained relatively stable at 13.22 over the last twelve months as of Q1 2024, the company presents a valuation that may be attractive to investors seeking entry points. Additionally, SmartFinancial has demonstrated a commitment to shareholder returns, having raised its dividend for 5 consecutive years, which is a positive signal for income-focused investors.
However, it's worth noting that SmartFinancial's revenue has seen a decline of 11.82% over the last twelve months leading up to Q1 2024. This dip in revenue growth underscores the importance of monitoring the company's future earnings reports and management's strategies to navigate the current financial landscape. Despite this, analysts predict the company will be profitable this year, and SmartFinancial has been profitable over the last twelve months, which may instill confidence in long-term prospects.
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