Federal Reserve Cuts And Fee Income Will Secure Stability

Key Takeaways

• Strategic opportunities for mergers and acquisitions could boost long-term growth and overall earnings in core and adjacent markets.
  
• Share buybacks could enhance earnings per share by reducing the outstanding share count.
  
• Declining net interest income, increased credit losses, and macroeconomic uncertainties pose challenges to future earnings and profitability across key segments.

Catalysts

Operates as the financial holding company for Peoples Bank that provides commercial and consumer banking products and services.

• Peoples Bancorp is poised for improved net interest income and net interest margin due to anticipated reductions in deposit and borrowing costs, despite potential Federal Reserve rate cuts.
  
• The company is expected to see a normalization of provision for credit losses and a decline in charge-offs, especially in their leasing business, which should positively impact net margins.
  
• There is optimism for fee-based income growth in the mid-single digits, driven by insurance commissions and mortgage origination, which should enhance revenue.
  
• With strategic opportunities for mergers and acquisitions in their current footprint and adjacent markets, there is potential for significant long-term growth, boosting overall earnings.
  
• Share buybacks, already in process, could enhance earnings per share (EPS) by reducing the outstanding share count.

Peoples Bancorp Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Peoples Bancorp's revenue will decrease by 12.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.8% today to 31.6% in 3 years time.
• Analysts expect earnings to reach $120.7 million (and earnings per share of $3.34) by about April 2028, up from $110.9 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 12.2x on those 2028 earnings, up from 8.9x today. This future PE is greater than the current PE for the US Banks industry at 10.7x.
• Analysts expect the number of shares outstanding to grow by 0.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.21%, as per the Simply Wall St company report.

Peoples Bancorp Future Earnings Per Share Growth

Risks

• Peoples Bancorp experienced a decline in net interest income and its net interest margin fell by 3 basis points, which could pressure future earnings if this trend continues.
  
• There is increased provision for credit losses due to net charge-offs predominantly driven by deterioration in macroeconomic conditions, which could negatively impact net margins if these conditions persist.
  
• The small ticket leasing business remains a concern with continued net charge-offs expected, driven by high balance accounts, potentially affecting future revenue and profitability from this segment.
  
• Noninterest expenses increased due to onetime costs, including stock-based compensation, which could impact net margins if similar expenses recur unexpectedly.
  
• Heightened uncertainty around tariffs and macroeconomic conditions could lead to increased credit risk and impacts on loan demand, potentially affecting revenue and net earnings.

Valuation

• The analysts have a consensus price target of $35.25 for Peoples 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 $39.0, and the most bearish reporting a price target of just $29.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $381.6 million, earnings will come to $120.7 million, and it would be trading on a PE ratio of 12.2x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $28.09, the analyst price target of $35.25 is 20.3% 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.