On Wednesday, Piper Sandler updated its view on Isabella Bank Corp (OTC:ISBA), raising the stock price target to $22.00 from the previous $20.00, while maintaining a Neutral rating on the stock. The revision comes after the bank reported strong second-quarter results, which showcased a significant increase in net interest income (NII) and net interest margin (NIM) expansion, exceeding expectations. The bank also demonstrated solid loan growth and maintained stable credit metrics.
The firm acknowledged the bank's promising quarterly performance, noting the positive impact of Isabella Bank's ongoing initiatives aimed at acquiring full commercial and industrial (C&I) relationships and building scalable infrastructure.
These efforts are expected to potentially accelerate profitability improvement, bringing it closer to that of its peers sooner than anticipated. Piper Sandler estimates Isabella Bank's return on assets (ROA) could reach 0.6%-0.8% in the second half of 2024 and into 2025.
In response to the positive developments, Piper Sandler has increased its earnings per share (EPS) estimates for Isabella Bank for the years 2024 and 2025 to $1.80 and $2.10, respectively, up from the previous estimates of $1.70 and $2.05.
The price target adjustment to $22.00 is based on a 1.05 times multiple of the bank's one-year forward tangible book value (TBV) estimate. This valuation reflects a moderate discount to the peer group average of 1.2 times, considering Isabella Bank's below-average profitability outlook.
Isabella Bank's attractive dividend yield, which stands at 5.6% compared to the peer average of 3.2%, was also highlighted as a factor supporting the bank's long-term investment appeal. Despite the limited near-term multiple expansion due to the bank's sub-optimal profitability outlook, Piper Sandler views Isabella Bank as a solid long-term holding.
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