On Monday, Piper Sandler adjusted its price target for Alerus Financial Corp . (NASDAQ:ALRS), increasing it to $24 from $22.50. The firm maintained a Neutral rating on the stock. The revision follows Alerus Financial's second-quarter performance, which displayed a combination of both strong points and areas of concern.
The financial institution reported higher-than-anticipated pre-provision net revenue (PPNR), which was attributed to significant growth in the company's higher multiple fee businesses and an expansion in core net interest margin (NIM). However, the quarter also saw elevated nonperforming loans (NPLs) and net charge-offs (NCOs).
In response to these results, Piper Sandler has made adjustments to its earnings per share (EPS) estimates for Alerus Financial. The firm decreased its 2024 operating EPS forecast to $1.75, a reduction of $0.05, due to a higher loan loss provision (LLP) that reflected the second-quarter shortfall. Conversely, the 2025 EPS estimate was increased by $0.05 to $2.55, based on anticipated improvements in core fee income.
The new price target of $24 is set at 9.5 times the firm's 2025 earnings estimate, which is an increase of 0.5 times due to higher peer multiples. The price target reflects a discount to Alerus Financial's peers, as Piper Sandler views the company's pending acquisition of HMNF as potentially dilutive to the franchise.
Piper Sandler expressed a cautious outlook on the stock's near-to-intermediate term valuation expansion, suggesting that recent credit issues might be unique given Alerus Financial's recent infrastructure improvements and historically benign track record.
However, the firm anticipates that skepticism regarding asset quality may persist until more consistent asset quality is demonstrated, particularly in light of Alerus Financial's above-average loan growth.
In other recent news, Alerus Financial Corporation reported a net income of $6.2 million in its second quarter earnings, marking a 48% increase in pre-provision net revenue.
The company attributes this strong performance to its diversified revenue streams, particularly from fees, which comprised over 53% of total revenues. Additionally, Alerus Financial's retirement and wealth management divisions exceeded expectations, contributing to the company's solid results.
Despite a provision expense of $4.5 million for credit normalization, Alerus Financial remains well-capitalized. The company also anticipates finalizing the acquisition of HMN Financial in the fourth quarter. However, it noted a few misses, including one construction loan and one C&I loan, with the former moving to non-accrual and the latter charged off.
Alerus Financial projects a slight dip in non-interest income in the next quarter, but expects stability in the retirement business and a slight uptick in wealth management. The company also plans to increase total expenses by a mid-single-digit percentage relative to 2023.
Despite some bearish highlights, such as increased net charge-offs and non-performing assets, Alerus Financial remains optimistic about its future, actively seeking acquisition opportunities, particularly in the retirement sector.
InvestingPro Insights
Following Piper Sandler's revised price target for Alerus Financial Corp. (NASDAQ:ALRS), real-time data from InvestingPro provides additional context for investors considering the stock. Alerus Financial currently has a market capitalization of $436.89 million and is trading at a high earnings multiple with a P/E ratio of 61.6. Despite a challenging revenue growth environment with a -19.65% change over the last twelve months as of Q2 2024, the company has shown resilience with a 3.62% dividend yield and a 5.26% dividend growth in the same period, highlighting its commitment to shareholder returns.
InvestingPro Tips underscore the company's strengths and challenges. Alerus Financial has been recognized for its long-standing consistency in dividend payments, having raised its dividend for 40 consecutive years. Moreover, analysts have revised their earnings upwards for the upcoming period, and the company has been profitable over the last twelve months. Nevertheless, Alerus Financial is noted to have weak gross profit margins, which could be a point of concern for potential investors.
For those interested in a deeper analysis, InvestingPro offers additional tips on Alerus Financial, available at https://www.investing.com/pro/ALRS. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and gain access to a total of 9 InvestingPro Tips that could further guide investment decisions.
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