On Tuesday, Old National Bancorp (NASDAQ:ONB) received an updated stock price target from Piper Sandler, increasing it to $27.00, up from the previous $23.00, while maintaining an Overweight rating. The adjustment follows the announcement that Old National Bancorp is set to acquire Bremer Financial Corp., a privately held company based in St. Paul, Minnesota, with assets totaling $16.2 billion.
The total deal value is approximately $1.4 billion, which is about 20.3% of Old National Bancorp's market capitalization, or roughly 26% when including a simultaneous stock offering. This marks a significant expansion for Old National Bancorp, particularly in the Twin-Cities area, where it will rise from the 10th to the 3rd largest market player in the Minneapolis/St. Paul MSA. The acquisition will make this region the second-largest market for Old National Bancorp.
Piper Sandler highlighted the strategic benefits of the acquisition, noting the substantial improvement in Old National Bancorp's market position. Moreover, the financial terms of the deal were deemed attractive, with Old National Bancorp paying just 1.0 times the tangible book value (TBV) for Bremer Financial Corp.
The valuation is expected to lead to a more than 22% increase in earnings per share (EPS), a TBV earnback period of less than three years, and significantly enhanced pro forma profitability.
Despite potential concerns about Old National Bancorp's readiness to manage a larger asset size post-acquisition, the financial benefits are considered to outweigh these questions. As a result of the acquisition, Piper Sandler has increased its EPS estimates for Old National Bancorp and reiterated its Overweight rating, signaling confidence in the bank's growth trajectory following the acquisition.
In other recent news, Old National Bancorp has reported steady third-quarter financial results for 2024. The earnings per share (EPS) were in line with market expectations, with a GAAP EPS of $0.44 and an adjusted EPS of $0.46.
This was supported by a 10.1% annualized growth in core deposits and a 4.1% increase in commercial loans. The company also noted an 8% increase in tangible common book value per share since the second quarter of 2024, marking a 21% year-over-year rise.
Despite a softer outlook for the fourth quarter due to interest rate changes, Old National Bancorp expects steady loan growth and net interest income. The bank also mentioned a focus on maintaining a strong capital position. Analysts from the company anticipate $2 billion in cash flows from the investment portfolio to boost net interest income.
With a focus on long-term investments to sustain positive operating leverage, Old National Bancorp plans to rebuild capital quickly with the potential for share buybacks next year. These recent developments from Old National Bancorp indicate a strategic approach towards growth and risk management in the face of challenging economic conditions.
InvestingPro Insights
Old National Bancorp's recent acquisition of Bremer Financial Corp. aligns well with several positive trends highlighted by InvestingPro data. The bank's stock has shown significant momentum, with a 22.61% price return over the past month and a robust 62.2% return over the last year. This strong performance has brought the stock price to 96.55% of its 52-week high, reflecting investor confidence in the company's growth strategy.
InvestingPro Tips further support the bank's solid position. Old National Bancorp has maintained dividend payments for 42 consecutive years, demonstrating a commitment to shareholder returns that may be attractive to investors considering the acquisition's potential impact on future dividends. Additionally, analysts predict the company will remain profitable this year, which is crucial as it integrates a significant acquisition.
However, it's worth noting that 7 analysts have revised their earnings downwards for the upcoming period, which could be related to short-term expectations surrounding the acquisition. For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips that could provide deeper insights into Old National Bancorp's financial health and future prospects.
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