On Thursday, Old Second Bancorp (NASDAQ: NASDAQ:OSBC) received an upgrade by Raymond (NS:RYMD) James from Outperform to Strong Buy, with an increased price target of $22.00, up from the previous $19.00.
The firm cited several reasons for the optimistic outlook on the bank's shares, including a resilient net interest margin (NIM), strategic market share gains, and a favorable economic outlook post U.S. presidential election.
Old Second Bancorp's NIM showed remarkable resilience in the face of the Federal Reserve's rate cuts, expanding by 1 basis point to 4.64% in the third quarter, despite a significant rate reduction in September. The bank's success in reducing its asset sensitivity is expected to help maintain a NIM above 4.0% through the end of 2026.
Additionally, Old Second Bancorp's recent acquisition of five branches in Southeast Chicago, adding approximately $275 million in deposits, demonstrates its effective execution of market share expansion strategies within the Chicago Metropolitan Statistical Area (MSA).
The firm also highlights Old Second Bancorp's proactive approach to identifying potential problem credits, which is anticipated to provide an advantage over its peers. This forward-thinking credit management is expected to turn past headwinds into future tailwinds when compared to competitors.
Furthermore, the positive and stronger economic outlook following the recent U.S. presidential election is seen as a potential boost to Old Second Bancorp's commercial and industrial (C&I) growth prospects, particularly within its Sponsor Finance portfolio that caters to private equity-backed companies.
Lastly, Raymond James pointed out that Old Second Bancorp's shares are trading at a notably lower multiple than its peers, with a price to estimated 2025 earnings (P/E) of 9.1x and a price to tangible book value (P/TBV) of 1.4x, compared to the peer average of 12.1x and 1.7x, respectively.
The firm believes that the bank's long-term growth potential and possible acquisition value are not currently reflected in its valuation.
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