Bremer Bank Integration Will Expand Upper Midwest Footprint

Key Takeaways

• Integration with Bremer Bank enhances Old National's scale and density, boosting balance sheet, revenue, and earnings growth.
  
• Strong loan and deposit pipeline, alongside disciplined expense management, support net interest margin growth despite macroeconomic uncertainties.
  
• Economic uncertainties, integration challenges, and competitive pressures could impact Old National Bancorp's credit quality, earnings, and future revenue growth.

Catalysts

Operates as the bank holding company for Old National Bank that provides consumer and commercial banking services in the United States.

• The integration with Bremer Bank is anticipated to enhance Old National's footprint, providing greater scale and density in the Upper Midwest, which is expected to boost the balance sheet and earnings growth, impacting revenue and net margins positively.
  
• The company has higher capital flexibility than initially modeled due to increased capital levels and lower rates, providing optionality to expand the balance sheet, likely driving future earnings.
  
• Old National has a strong pipeline and growth outlook for loans and deposits, indicating potential revenue growth despite macroeconomic uncertainties.
  
• Disciplined expense management and deposit pricing strategies are expected to maintain or improve net margins and contribute to positive operating leverage.
  
• The investment portfolio's repricing dynamics, combined with loan growth and the Bremer partnership, are expected to support net interest income and net interest margin growth in 2025, positively impacting earnings.

Old National Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Old National Bancorp's revenue will grow by 25.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.5% today to 38.9% in 3 years time.
• Analysts expect earnings to reach $1.4 billion (and earnings per share of $3.04) by about April 2028, up from $547.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.1x on those 2028 earnings, down from 11.6x today. This future PE is lower than the current PE for the US Banks industry at 10.7x.
• Analysts expect the number of shares outstanding to decline by 0.95% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.42%, as per the Simply Wall St company report.

Old National Bancorp Future Earnings Per Share Growth

Risks

• Old National Bancorp's exposure to economic uncertainties and global trade factors could challenge its future credit quality, potentially impacting allowances for credit losses and net margins.
  
• The macroeconomic volatility and lower-than-anticipated interest rates present risks to the net interest income guidance, affecting future earnings.
  
• The potential for competitive pressure in commercial real estate and broader loan markets could impede loan growth and adversely affect revenue.
  
• The uncertainty surrounding the full economic impact of the Bremer Bank integration raises execution risks, potentially affecting future synergies and cost efficiencies.
  
• With assumptions of rate cuts factored into projections, any deviation like unforeseen rate hikes could shift expected net interest margins and earnings.

Valuation

• The analysts have a consensus price target of $26.278 for Old National Bancorp based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $24.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.6 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 7.1x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of $19.93, the analyst price target of $26.28 is 24.2% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.