On Monday, Piper Sandler shifted its rating on Renasant Corp (NYSE: NYSE:RNST) stock from Neutral to Overweight, raising the price target to $40 from $34.
The upgrade comes in response to the bank's recent announcement of a deal and a $230 million common equity raise, which analysts believe will significantly alter the bank's future prospects.
The move to Overweight reflects optimism about Renasant's growth following last week's announcement. Despite the cost of the deal being considered high in relation to tangible book value per share (TBVPS), and the substantial discount applied to the common equity raise, the expectation is that these steps were essential for Renasant to achieve greater scale and profitability.
Analysts project that the approximately 14% dilution in TBVPS caused by the transaction will be recouped in roughly 3.5 years, according to the company's estimates. Piper Sandler's calculations suggest a slightly longer period of over four years.
Nevertheless, the anticipated increase in profitability, with return on assets (ROA) exceeding 1.3% and return on tangible common equity (ROTCE) surpassing 14% by 2026, is seen as a positive trajectory for the bank.
The new price target of $40 is based on approximately 12 times Piper Sandler's estimated 2026 earnings for Renasant, discounted back one year at an 8% rate. This target is slightly below top-quartile multiples, taking into account some risk associated with the execution of the bank's strategic plans.
InvestingPro Insights
Piper Sandler's recent upgrade of Renasant Corp (NYSE: RNST) to Overweight with a new price target of $40 aligns with some of the optimistic metrics and InvestingPro Tips for the bank. Notably, Renasant has been able to maintain dividend payments consistently for 32 years, which is a testament to its financial stability and commitment to shareholder returns. This is complemented by the analysts' prediction that the company will remain profitable this year, as it has been over the last twelve months.
InvestingPro Data shows Renasant Corp with a market capitalization of $2.12 billion and a Price/Earnings (P/E) ratio of 12.62, which adjusts to 14.31 for the last twelve months as of Q2 2024. The company's revenue growth for the same period was slightly negative at -0.95%, but it experienced a quarterly revenue growth of 11.11% in Q2 2024. The bank's dedication to shareholder value is also reflected in its dividend yield of 2.64% as of mid-June 2024.
These metrics, along with the additional 4 InvestingPro Tips available on the InvestingPro platform, provide investors with a more comprehensive view of Renasant's financial health and future prospects. The bank's ability to navigate a dilutive equity raise while maintaining profitability and dividend payments could be a strong indicator of its resilience and potential for growth.
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