1st Source (SRCE) Could Be 42% Undervalued After Strong Earnings And A Dividend Rise

1st Source (SRCE) stock traders are reacting to the company’s second quarter 2026 update, which reported higher net interest income and net income, a dividend increase, and lower net charge-offs.

See our latest analysis for 1st Source.

The latest earnings and dividend news has arrived against a strong backdrop for 1st Source, with the stock’s share price returning 10.29% over the past month and 45.41% year to date. Three and five year total shareholder returns of 103.65% and 115.17% suggest momentum has been building over time.

If the earnings-driven move in 1st Source has you looking for more ideas, this is a good moment to broaden your search with 19 top founder-led companies

After 1st Source stock’s sharp move on stronger earnings and a higher dividend, the key tension now is clear. Is most of the easy upside already in the rearview mirror, or is the valuation still leaving room ahead?

Price-to-Earnings of 12.9x: Is it justified for 1st Source?

On the latest figures, 1st Source trades on a P/E of 12.9x, which sits below its peer group average of 14.3x but slightly above the wider US banks sector on 12x.

The P/E ratio compares the company’s share price to its earnings per share. For a bank such as 1st Source, it is often used as a quick shorthand for how the market values current earnings given the company’s profit track record, balance sheet and growth outlook.

Here, the picture is mixed. On one hand, 1st Source screens as good value versus the specific peer group, with a lower P/E and a record of 7.5% annual earnings growth over the past five years alongside high quality earnings and a 1.89% dividend that has been described as reliable. On the other hand, the stock is described as expensive both versus the US banks industry average P/E of 12x and versus an estimated fair P/E of 11.3x. The market could move closer to that estimated fair level if enthusiasm for the recent 20.9% earnings growth cools.

Relative to the broader industry, that slight P/E premium suggests investors are willing to pay more for each dollar of 1st Source earnings than for the average US bank, even though earnings and revenue are both forecast to grow slower than the overall US market.

Explore the SWS fair ratio for 1st Source

Result: Price-to-Earnings of 12.9x (OVERVALUED)

However, 1st Source still faces risks if loan demand slows in its core US markets or if credit trends worsen and reduce those currently higher earnings.

Find out about the key risks to this 1st Source narrative.

Another view on 1st Source valuation

The P/E discussion presents 1st Source as slightly expensive relative to the US banks sector and its own fair ratio of 11.3x. However, our DCF model points in a different direction, with an estimated future cash flow value of $128.76 per share compared to the current $90.82, which suggests undervaluation. Which signal do you treat as more important?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out 1st Source for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 52 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

With mixed signals on 1st Source valuation and earnings momentum, this is a good time to review the underlying data yourself and be prepared to act promptly. To see which potential upsides analysts are highlighting, review the 3 key rewards

Looking for more investment ideas beyond 1st Source?

If 1st Source has sharpened your focus, do not stop here. Use this moment to widen your watchlist with stocks that fit clear, disciplined criteria.

• Target potential mispricings by scanning companies that combine quality metrics with lower valuations using the 52 high quality undervalued stocks.
• Strengthen your income stream by reviewing companies in the 7 dividend fortresses that offer higher yields with a focus on resilience.
• Prioritise resilience by assessing companies screened through the 82 resilient stocks with low risk scores that emphasise financial strength and lower risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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