On Monday, Piper Sandler adjusted its rating for 1st Source (NASDAQ:SRCE) stock, moving it from Overweight to Neutral. The firm also increased the price target to $67.50, up from the previous $60.00. The downgrade was attributed to the stock's valuation after it closed at an all-time high on Friday.
1st Source is currently trading at 12.7 times the firm's projected 2025 earnings per share (EPS), which aligns with the stock's long-term historical average of approximately a 1x premium over its peers, valued at 12.0 times EPS.
The bank's second-quarter results demonstrated strength, with an 11% positive pre-provision net revenue (PPNR) beat, and upside performance that has led Piper Sandler to revise its 2024 and 2025 EPS estimates upwards to $5.25 and $5.00, respectively.
This represents an increase of 9% and 8% over previous estimates. The revised estimates are considered conservative and could be exceeded if the Federal Reserve decides to pause interest rate cuts, as the current forecast includes an assumption of five rate cuts by the fourth quarter of 2025.
Piper Sandler's new price target of $67.50 reflects a 13.5 times multiple on the revised 2025 EPS estimate, an increase of 0.5 times due to higher peer valuations. The price target upgrade acknowledges the premium 1st Source holds relative to its peers.
The firm continues to view 1st Source as a solid long-term holding, citing its superior profitability across various economic cycles, conservative credit profile, and robust organic balance sheet growth capabilities, among other positive attributes. Despite the downgrade to Neutral, the firm's outlook on 1st Source remains positive based on these factors.
In other recent news, 1st Source Corporation reported a significant increase in its net income for the second quarter of 2024, marking a 13.44% rise from the same period last year and a 24.91% growth from the first quarter of 2024.
The company also announced a substantial increase in average loans and leases, and deposits, contributing to a year-over-year increase of 7.57% and 3.52%, respectively. Furthermore, 1st Source's board approved a cash dividend increase to $0.36 per common share for the quarter, up by 12.50% from the previous year.
The company's net interest income reached $74.19 million, 2.96% higher than the first quarter of 2024 and 8.00% higher compared to the same quarter of the previous year. The bank's net interest margin improved to 3.59%, indicating a stronger earning potential on interest-earning assets. Additionally, 1st Source recorded net recoveries of $1.99 million, a reversal from the net charge-offs of $6.12 million in the previous quarter.
1st Source Corporation's capital position remains robust, with a common equity-to-assets ratio of 11.75% and a tangible common equity-to-tangible assets ratio of 10.91% as of June 30, 2024. The company has also been recognized by Forbes as one of America's Best Banks.
In other developments, Piper Sandler, an investment firm, raised its price target for 1st Source Corporation, reflecting a positive view of the company's first-quarter performance and future prospects. The firm also revised its earnings per share estimates for 1st Source for the years 2024 and 2025, indicating a 6% increase for 2024 and a 7% increase for 2025.
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