On Tuesday, Piper Sandler adjusted its outlook on Merchants Bancorp (NASDAQ:MBIN) shares, increasing the price target to $52.50 from the previous $48.00 while maintaining an Overweight rating on the stock. This change comes on the heels of Merchants Bancorp's recent financial maneuvering.
Last week, Merchants Bancorp completed an offering of 7.625% fixed preferred stock, redeemable in January 2030, which generated $223 million in net proceeds. The firm anticipates that these funds will be used to redeem the company's $125 million Series B preferred stock, which underwent a rate reset on October 1 to 3-month SOFR plus 483 basis points.
Moreover, the proceeds are expected to bolster Merchants Bancorp's organic balance sheet growth, which is projected to be above average.
Piper Sandler has adjusted its fourth quarter 2024 and full-year 2025 and 2026 operating earnings per share (EPS) estimates for Merchants Bancorp to $1.29, $5.00, and $5.25, respectively.
These figures have been slightly revised down from the previous estimates of $1.29, $5.05, and $5.30 to account for the potential earnings dilution from the preferred stock offering. The new estimates consider updated revenue from government operating subsidies and loan growth assumptions.
The new price target of $52.50 reflects a valuation of 10.5 times Piper Sandler's 2025 estimated EPS for Merchants Bancorp. This represents an increase of 1.0 times the multiple, attributed to higher peer multiples observed in the market.
The firm also revisited its Overweight rating on Merchants Bancorp's stock, reinforcing its benign net charge-off expectations. This rating reassessment follows a recent discussion with the company's management at Piper Sandler's East Coast Financials Conference.
In other recent news, Merchants Bancorp has seen several significant developments. The company has priced its public offering of 9.2 million depositary shares at $25 each, which represent a 1/40th interest in its Series E preferred stock. The offering, managed by Morgan Stanley (NYSE:MS) & Co. LLC, UBS Securities LLC, Piper Sandler & Co., and Raymond (NS:RYMD) James & Associates, Inc., is expected to close around November 25, 2024.
Merchants Bancorp also announced the appointment of Sean Sievers as the new Chief Financial Officer, following the retirement of former CFO, John Macke. Sievers, who brings over 25 years of executive banking experience to the role, is expected to provide valuable insights.
Meanwhile, Morgan Stanley initiated coverage on Merchants Bancorp's stock with an Equalweight rating, suggesting a potential 24% upside from the current trading level.
This assessment is based on the expectation that the discount in Merchants Bancorp's stock price will decrease over time, contingent on the company's ability to maintain its higher earnings per share level across various macroeconomic conditions. These are the recent developments surrounding Merchants Bancorp.
InvestingPro Insights
Complementing Piper Sandler's optimistic outlook on Merchants Bancorp (NASDAQ:MBIN), recent data from InvestingPro provides additional context to the company's financial position. MBIN's P/E ratio stands at a modest 6.8, indicating that the stock may be undervalued relative to its earnings. This aligns with an InvestingPro Tip suggesting that MBIN is "trading at a low earnings multiple."
The company's revenue for the last twelve months as of Q3 2024 reached $607.41 million, with a robust revenue growth of 25.9% over the same period. This strong performance is reflected in MBIN's impressive operating income margin of 68.81%, underscoring the company's operational efficiency.
Investors may also find comfort in MBIN's dividend history, with an InvestingPro Tip noting that the company "has raised its dividend for 8 consecutive years." This consistent dividend growth, coupled with a current dividend yield of 0.87%, may appeal to income-focused investors.
For those seeking a deeper dive into Merchants Bancorp's financials and prospects, InvestingPro offers 9 additional tips, providing a comprehensive analysis to inform investment decisions.
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