Celebrations may be in order for Meridian Corporation (NASDAQ:MRBK) shareholders, with the analysts delivering a significant upgrade to their statutory estimates for the company. The consensus statutory numbers for both revenue and earnings per share (EPS) increased, with their view clearly much more bullish on the company's business prospects. The market seems to be pricing in some improvement in the business too, with the stock up 10.0% over the past week, closing at US$21.32. Whether the upgrade is enough to drive the stock price higher is yet to be seen, however.
Following the upgrade, the consensus from three analysts covering Meridian is for revenues of US$119m in 2021, implying a noticeable 7.0% decline in sales compared to the last 12 months. Statutory earnings per share are anticipated to sink 20% to US$3.47 in the same period. Previously, the analysts had been modelling revenues of US$106m and earnings per share (EPS) of US$2.49 in 2021. There has definitely been an improvement in perception recently, with the analysts substantially increasing both their earnings and revenue estimates.
Despite these upgrades, the analysts have not made any major changes to their price target of US$26.33, suggesting that the higher estimates are not likely to have a long term impact on what the stock is worth. That's not the only conclusion we can draw from this data however, as some investors also like to consider the spread in estimates when evaluating analyst price targets. The most optimistic Meridian analyst has a price target of US$27.00 per share, while the most pessimistic values it at US$26.00. Even so, with a relatively close grouping of estimates, it looks like the analysts are quite confident in their valuations, suggesting Meridian is an easy business to forecast or the underlying assumptions are obvious.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Meridian's past performance and to peers in the same industry. These estimates imply that sales are expected to slow, with a forecast revenue decline of 7.0%, a significant reduction from annual growth of 12% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 6.6% annually for the foreseeable future. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Meridian is expected to lag the wider industry.
The Bottom Line
The most important thing to take away from this upgrade is that analysts upgraded their earnings per share estimates for this year, expecting improving business conditions. Pleasantly, analysts also upgraded their revenue estimates, and their forecasts suggest the business is expected to grow slower than the wider market. Some investors might be disappointed to see that the price target is unchanged, but we feel that improving fundamentals are usually a positive - assuming these forecasts are met! So Meridian could be a good candidate for more research.
Using these estimates as a starting point, we've run a discounted cash flow calculation (DCF) on Meridian that suggests the company could be somewhat undervalued. For more information, you can click through to our platform to learn more about our valuation approach.
Of course, seeing company management invest large sums of money in a stock can be just as useful as knowing whether analysts are upgrading their estimates. So you may also wish to search this free list of stocks that insiders are buying.
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Meridian Corporation operates as the holding company for Meridian Bank that provides commercial banking products and services in Pennsylvania, New Jersey, Delaware, and Maryland.
Undervalued with excellent balance sheet and pays a dividend.