On Tuesday, Stephens, a financial analyst firm, increased the price target for Heritage Financial (NASDAQ: NASDAQ:HFWA) to $26.00, up from the previous $26.00, while keeping an Equal Weight rating on the stock.
The move follows Heritage Financial's third-quarter performance, which featured a 15.6% pre-provision net revenue (PPNR) beat against consensus. This was attributed to better net interest income (NII) and net interest margin (NIM), as well as slightly lower operating expenses.
The third quarter for Heritage Financial was marked by a strong 12.9% linked-quarter annualized (LQA) loan growth and an even more impressive 20.6% LQA non-interest-bearing (NIB) deposit growth. The company indicated that it expects loan growth to remain robust through the end of the year and projected mid-single to high-single digit growth into 2025.
Despite a relatively low exposure to floating rate loans, which comprise 22% of the total loan portfolio, the analyst expects NIM to remain relatively stable in the fourth quarter. This stability is anticipated due to the gradual nature of deposit repricing. However, NIM expansion throughout 2025 is foreseen as a benefit, especially considering the potential for stronger relative growth.
The analyst also noted that modest securities repositioning transactions could provide additional support in the upcoming quarters. As a result of these factors, the 2025 operating earnings per share (Op. EPS) forecast has been raised by 12% to $1.99. The price target adjustment reflects these updated expectations, while the Equal Weight rating indicates the analyst's view that the stock is valued appropriately relative to its peers.
In other recent news, Heritage Financial has experienced significant growth in its Q3 2024 earnings call, reporting a $147 million increase in loan balances and a $193 million rise in total deposits. The company's net interest margin improved to 3.33%, leading to a net interest income increase of $1.8 million. Heritage Financial also plans to reprice $420 million of maturing CDs in Q4, which is expected to reduce costs due to declining market rates.
Piper Sandler, an analyst firm, has raised its price target for Heritage Financial to $28, citing improved net interest income and expectations for future earnings growth. The firm also adjusted its earnings per share estimates for 2024 and 2025, and introduced an earnings estimate for 2026.
Heritage Financial anticipates mid- to high single-digit loan growth in 2025, driven by a robust pipeline. The company's strategic plans include expanding its presence along the I-5 corridor in Oregon and Idaho, and preparing for growth towards the $10 billion asset mark.
InvestingPro Insights
Recent data from InvestingPro adds depth to the analysis of Heritage Financial (NASDAQ: HFWA). The company's P/E ratio of 21.34 suggests that investors are willing to pay a premium for its earnings, possibly due to the strong loan and deposit growth highlighted in the article. This is further supported by the stock trading near its 52-week high, with a significant 33.11% price return over the past six months.
InvestingPro Tips reveal that Heritage Financial has maintained dividend payments for 14 consecutive years and has raised its dividend for 4 consecutive years, indicating a commitment to shareholder returns. This aligns with the company's positive outlook on loan growth and potential NIM expansion mentioned in the article.
The dividend yield of 4.01% may be attractive to income-focused investors, especially considering the company's track record of dividend growth. However, it's worth noting that net income is expected to drop this year, which could impact future dividend sustainability.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Heritage Financial's financial health and market position.
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