On Tuesday, Piper Sandler adjusted its outlook on shares of First Business Financial Services (NASDAQ:FBIZ), increasing the price target to $53.00, up from the previous $50.00, while keeping an Overweight rating on the stock. The firm acknowledged FBIZ's strong performance, noting a solid quarter with a 2% positive operating leverage, attributed to effective cost control and a largely expected net interest income (NII).
The company's organic balance sheet growth was highlighted as high-quality and strong, with relative net interest margin (NIM) stability. Piper Sandler expressed optimism due to the flat nonperforming assets (NPAs) and stable net charge-offs (NCOs), despite some challenges in the company's equipment finance portfolio.
The firm's confidence in FBIZ is bolstered by its superior operating leverage outlook, which is anticipated to lead to above-average earnings per share (EPS) and tangible book value (TBV) growth in 2025.
The firm's outlook for FBIZ includes a revised EPS forecast for the fourth quarter of 2024 and the full year of 2025, now expecting $1.26 and $5.30, respectively, representing slight decreases of 3% and 1%. Additionally, Piper Sandler introduced a 2026 EPS estimate of $6.00.
The price target revision to $53 reflects a 10.0 times multiple on the projected 2025 EPS, a slight reduction of 0.5 times due to lower peer multiples. This valuation also considers a moderate discount compared to peers, justified by FBIZ's less favorable funding mix and loan-to-deposit (L/D) optics.
The analyst's statement underlined the company's strategic match-funded balance sheet approach as a key factor supporting a stable NIM throughout economic cycles. The outlook for FBIZ is based on the firm's projected financial performance and market positioning, with an emphasis on the company's ability to maintain stability and growth despite potential market fluctuations.
In other recent news, First Business Financial Services issued $20 million in subordinated debentures with a 7.5% fixed interest rate, set to mature in 2034. The proceeds will be used to repay outstanding debt and support future loan growth. This move is part of the company's strategy to manage its capital requirements and growth objectives.
First Business Financial Services also reported strong earnings of $1.23 per share, exceeding expectations due to robust pre-provision net revenue, a lower provision for credit losses, and a reduced tax rate. This positive financial performance led DA Davidson and Keefe, Bruyette & Woods to upgrade the stock and increase the price target to $50 and $51 respectively.
The company experienced a 10% increase in loan growth, primarily driven by growth in commercial and industrial loans. Its net interest margin rose by 7 basis points quarter over quarter, which, along with a lower provision for credit losses and stable expenses, is expected to continue supporting a positive outlook for the company's net interest income.
Lastly, First Business Financial maintained its quarterly cash dividend at $0.25 per common share, indicating a stable return for its investors.
InvestingPro Insights
Recent data from InvestingPro provides additional context to Piper Sandler's positive outlook on First Business Financial Services (NASDAQ:FBIZ). The company's P/E ratio of 9.66 suggests that the stock may be undervalued relative to its earnings, aligning with the analyst's increased price target. This is further supported by FBIZ's price-to-book ratio of 1.24, indicating that the stock is trading close to its book value.
InvestingPro Tips highlight FBIZ's strong dividend history, having raised its dividend for 11 consecutive years and maintained payments for 20 years. This consistent dividend growth, coupled with a current dividend yield of 2.23%, underscores the company's financial stability and commitment to shareholder returns, which may contribute to the "above-average EPS and TBV growth" projected by Piper Sandler for 2025.
The company's revenue growth of 3.59% over the last twelve months and an impressive operating income margin of 36.4% reflect FBIZ's ability to generate profits efficiently, supporting the analyst's observation of "effective cost control." These metrics, along with the strong return over the last year noted in the InvestingPro Tips, reinforce the Overweight rating assigned by Piper Sandler.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide further insights into FBIZ's financial health and market position.
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