On Monday, Piper Sandler adjusted its price target for MidWest One Financial (NASDAQ:MOFG), reducing it to $31.50 from the previous $33.00, while the Neutral rating for the stock was maintained. The analyst at Piper Sandler noted that despite some mixed credit quality metrics, MidWest One's third-quarter results were strong, highlighted by a 16% positive pre-provision net revenue (PPNR) surprise due to greater net interest margin (NIM) expansion, stronger core fee income, and well-managed operating expenses.
MidWest One Financial's outlook for meaningful profitability remains unchanged following its recent common equity raise and balance sheet re-positioning. The analyst believes that the current share valuation reflects this outlook. The long-term prospects for MidWest One are viewed positively, especially as management continues to successfully pursue the company's strategic goals.
The analyst has revised downward the earnings per share (EPS) estimates for MidWest One for the fourth quarter of 2024 and the full year of 2025 to $0.72 and $3.15, respectively, from the previous estimates of $0.76 and $3.28. This revision is attributed to a smaller balance sheet starting point for the fourth quarter and slightly higher expectations for operating expenses. Additionally, an EPS estimate of $3.40 for 2026 was introduced.
The new price target of $31.50, which represents a $1.50 decrease, is based on a 10.0 times multiple of the estimated 2025 earnings per share, consistent with the analyst's methodology. This valuation multiple remains unchanged and continues to represent a moderate discount to the peer group average of 10.9 times, reflecting MidWest One's slightly below-average profitability outlook.
In other recent news, MidWest One Financial has been maintaining a steady course with its recent significant common stock offering and potential balance sheet restructuring. The financial institution has revealed plans for a $94 million net common stock offering, which could increase to $108 million if an additional 15% option is exercised. MidWest One is also considering a balance sheet restructuring that would involve selling approximately $1.05 billion in securities, constituting about 58% of its total securities.
This sale is expected to result in a pre-tax loss of around $160 million, equating to a 13.5% loss. The bank also plans to reduce its borrowings by $418 million and reinvest roughly $616 million into securities with an estimated yield of 4.54%. These anticipated restructuring actions are projected to dilute the tangible book value (TBV) by 27%-30%, bringing it down to approximately $20-$21.
However, these changes are expected to increase the annualized net interest income (NII) by $25.6 million, or 18% of the last twelve months' NII. Amid these developments, Piper Sandler has maintained its Neutral rating on the bank's stock and increased the price target to $30.00, up from the previous target of $22.00.
The firm's positive stance on the bank's ongoing strategic transformation plan under CEO Chip Reeves is noteworthy, despite maintaining a Neutral position due to MidWest One's below-average return outlook and potential future Federal Reserve rate cuts.
InvestingPro Insights
Recent data from InvestingPro adds depth to the analysis of MidWest One Financial (NASDAQ:MOFG). The company's market capitalization stands at $587.1 million, with a price-to-book ratio of 1.04 as of the last twelve months ending Q3 2024. This valuation aligns with the analyst's view of the company's current market position.
InvestingPro Tips highlight that MOFG has raised its dividend for 13 consecutive years and maintained payments for 17 years, demonstrating a commitment to shareholder returns. This consistent dividend policy may be attractive to income-focused investors, especially given the current dividend yield of 3.43%.
The company's financial performance has been mixed, with a significant revenue decline of 79.01% in the last twelve months. However, InvestingPro Tips indicate that analysts have revised their earnings upwards for the upcoming period, suggesting potential improvement. This optimism is reflected in the stock's performance, with a 50.33% total return over the past year.
It's worth noting that InvestingPro offers 8 additional tips for MOFG, providing a more comprehensive analysis for investors seeking deeper insights into the company's prospects.
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