On Friday, Piper Sandler, a financial services firm, increased its price target for Old Second Bancorp (NASDAQ: NASDAQ:OSBC) to $19.50, up from the previous $18.00, while retaining an Overweight rating on the stock. The firm's analyst highlighted the bank's proactive approach to identifying problem loans and improving credit quality as key factors behind the revision.
According to the analyst, Old Second Bancorp's asset quality metrics are expected to continue improving, which could lead to the stock trading at premium multiples. Currently, the shares are trading at a 1x-3x discount on forward price-to-earnings (P/E) ratios.
The bank's solid profitability metrics, including a return on assets (ROA) of 1.6% and a return on tangible common equity (ROTCE) of 17.3% in the second quarter, were also cited as reasons for the raised price target.
The firm anticipates that Old Second Bancorp's strong financial position, with a tangible common equity (TCE) of 9.4% as of June 30, will provide the bank with greater flexibility in excess capital. This could potentially support disciplined and well-received mergers and acquisitions (M&A) to further enhance the bank's profitability.
Piper Sandler maintained its earnings per share (EPS) estimates for Old Second Bancorp for the years 2024 and 2025 at $1.90 and $1.70, respectively. The new price target of $19.50 is based on an 11.5 times multiple of the firm’s estimated 2025 earnings per share, which is an increase of 1.0x due to higher peer multiples. The target also reflects a premium compared to peers, which are valued at 11.0 times, given Old Second Bancorp's above-average profitability outlook, even as potential Federal Reserve rate cuts are anticipated.
In other recent news, Old Second Bancorp announced a mixed bag in its Q1 earnings results, posting a net income of $21.3 million, or $0.47 per diluted share. This figure was impacted by a $3.5 million provision for credit losses. Despite a decrease in net interest income by $1.5 million and a contraction in total loans, the bank's balance sheet demonstrated resilience, with a tangible common equity ratio of 9.04%.
In parallel, Old Second Bancorp declared a quarterly cash dividend of $0.05 per share, reflecting the company's financial stability and its consistent practice of returning value to its shareholders. This dividend is set to be payable to shareholders of record at the close of business in late July 2024.
These recent developments indicate that Old Second Bancorp is focused on maintaining stability while actively assessing and monitoring loan portfolio risks. The company's commitment to disciplined expense management, coupled with its focus on balance sheet optimization, suggests potential for future growth.
According to executive Brad Adams, the company is leaning towards fixed securities, and despite lower loan growth and flat margin trends, the bank recorded growth in noninterest income and remains optimistic about deposit funding and stable net interest margin trends.
InvestingPro Insights
In light of Piper Sandler's updated price target for Old Second Bancorp, current metrics from InvestingPro provide additional context for investors. The bank's market capitalization stands at a robust $735.47 million, with a very attractive P/E ratio of 8.57, signaling that the stock might be undervalued compared to earnings. Notably, Old Second Bancorp has a history of maintaining dividend payments, with dividends being distributed consistently for the past 9 years, which could appeal to income-focused investors. The bank's commitment to shareholder return is evident with a current dividend yield of 1.22%.
InvestingPro Tips suggest that while Old Second Bancorp has been grappling with weak gross profit margins, it has been trading near its 52-week high, indicating strong market confidence. Additionally, analysts predict the company will remain profitable this year, a sentiment backed by a solid performance over the last decade. For investors looking to dive deeper into Old Second Bancorp's financials and future prospects, there are 7 additional InvestingPro Tips available, which can be accessed with the use of coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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