On Monday, Piper Sandler adjusted its outlook on Heritage Financial (NASDAQ:HFWA), increasing the price target to $28 from $27 while maintaining an Overweight rating on the stock. The firm's analyst cited a combination of improved net interest income (NII) and expectations for future earnings growth as the primary reasons for the adjustment.
The analyst noted a reduction in the estimated earnings per share (EPS) for 2024 to $1.35, down from the previous estimate of $1.41. However, the forecast for 2025 was raised to $1.86 from $1.78. The upward revision reflects a positive outlook on the company's net interest income, which is expected to be partially offset by higher non-interest expenses (NIE) and loan loss provisions (LLP).
Furthermore, Piper Sandler introduced an earnings estimate for the year 2026, setting the EPS at $2.20. The new price target of $28, which is an increase of $1, continues to value Heritage Financial at 15 times the firm's estimated 2025 earnings per share. This valuation is indicative of a "high quality premium" relative to its peers, which trade at an average of 12.4 times earnings.
The analyst's comments highlight Heritage Financial's core deposit franchise, unique organic growth opportunities, and a more conservative credit approach as factors contributing to the premium valuation. These elements are seen as differentiators that warrant the higher price target set by Piper Sandler.
In other recent news, Heritage Financial Corporation reported significant growth in its Q3 2024 earnings call, despite prevailing market challenges. The company witnessed a $147 million increase in loan balances and a $193 million rise in total deposits. Its net interest margin improved to 3.33%, leading to a net interest income increase of $1.8 million. The average yield on loans was reported at 5.60%.
The company also announced plans to reprice $420 million of maturing CDs in Q4, which is expected to reduce costs due to declining market rates. New loan commitments increased by 16% to $253 million, while the loan pipeline grew substantially to $491 million, compared to $291 million a year earlier.
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 Piper Sandler's analysis of Heritage Financial (NASDAQ:HFWA). The company's market capitalization stands at $762.99 million, with a P/E ratio of 20.74, aligning with the premium valuation noted by the analyst.
InvestingPro Tips highlight that Heritage Financial has maintained dividend payments for 14 consecutive years and has raised its dividend for 4 consecutive years, underscoring the company's commitment to shareholder returns. This consistent dividend policy supports the "high quality premium" valuation mentioned in the analyst report.
The company's revenue for the last twelve months as of Q3 2024 was $203.99 million, with an operating income margin of 23.34%. While these figures demonstrate profitability, an InvestingPro Tip cautions that net income is expected to drop this year, which aligns with Piper Sandler's reduced 2024 EPS estimate.
Interestingly, Heritage Financial's stock has seen a significant price uptick over the last six months, with a total return of 27.94%. This positive momentum, coupled with the analyst's increased price target, suggests market confidence in the company's future performance.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics. Currently, there are 5 more InvestingPro Tips available for Heritage Financial, providing further insights into the company's financial health and market position.
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