MidWestOne's Restructuring Expected To Boost Margins By 70 Basis Points Starting In Q4: Analyst

Keefe, Bruyette & Woods analyst Damon DelMonte upgraded MidWestOne Financial Group, Inc. MOFG to Outperform from Market Perform, raising the price forecast to $39 from $34.

The analyst writes that despite shares of MidWestOne responding positively to its equity raise and balance sheet restructuring in September, its valuation remains attractive, with shares trading at a ~20% P/E and ~8% P/TBV discount to competitors.

DelMonte also views the bank’s strategic plan, stronger balance sheet, and restructuring as key factors for sustainable and improving performance.

DelMonte projects the firm’s restructuring to increase its margin by around 70 basis points starting in the fourth quarter of 2024, reaching 3.20%.

Also Read: MidWestOne’s Strategic Chess Move: From Florida Sands To Denver Peaks With $32.6M Buyout

The analyst forecasts the margin to rise further in the following quarters, with an estimate of 3.32% by the fourth quarter of 2025, and an additional five basis points in 2026, assuming loan growth is better than expected.

The analyst notes that the bank has made progress in improving its return profile and sustaining earnings momentum through its strategic plan. However, this progress has not yet closed the valuation gap.

However, DelMonte writes that continued execution of the plan should eventually help close this disconnect. Per the analyst, the stock presents a strong investment opportunity for community bank investors, leading to an “Outperform” rating.

The base case projects a 23% return, while the upside scenario suggests a 45% return ($46/share), and the downside scenario forecasts a 14% loss ($27/share), DelMonte notes.

The upside is driven by better revenue growth, increased fee income, and controlled expenses, partly offset by a higher provision to maintain reserves.

Overall, the analyst notes that MidWestOne has refocused its operations, enhanced lending and fee income capabilities, and improved efficiency. After the capital raise and balance sheet repositioning, the analyst sees a clearer path to improved profitability, considering the changes will lead to more sustainable earnings, DelMonte adds.

Price Action: MOFG shares are trading higher by 0.87% to $33.01 at last check Tuesday.

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