A Look at 1st Source's (SRCE) Valuation Following Fed Rate Cut Speculation

Shares of 1st Source (SRCE) jumped after comments from New York Federal Reserve President John Williams hinted at the possibility of an interest rate adjustment. The prospect of lower rates has sparked fresh interest among regional bank investors.

See our latest analysis for 1st Source.

Banks like 1st Source often react quickly to changes in rate expectations, and the past week's rising share price hints that investors see growth ahead if borrowing costs ease. While the 1-year total shareholder return lags at -3.96%, the year-to-date share price return of 7.48% points to renewed momentum as markets anticipate a friendlier rate environment.

If rising rate cut hopes have you curious about what else could be gaining traction, now is a great time to broaden your search and discover fast growing stocks with high insider ownership

But with shares climbing on renewed rate cut hopes and a solid year-to-date gain, is 1st Source still trading at an attractive valuation, or has the market already priced in the bank’s next stage of growth?

Price-to-Earnings of 10.3x: Is it justified?

1st Source is trading at a price-to-earnings (P/E) ratio of 10.3x, just above its estimated fair P/E ratio of 9.8x. This suggests the market is paying a slight premium relative to its fundamentals.

The price-to-earnings ratio compares the company’s current market price to its earnings per share, providing a snapshot of how the market values its current and future profitability. In banking, a lower P/E against fair value or peers can signal potential undervaluation. A higher ratio calls for closer scrutiny of growth prospects.

While the slight premium signals investor confidence, SRCE’s market value appears only modestly higher than the level suggested by underlying earnings. This proximity to fair value means future price moves may hinge on profit growth or shifts in sentiment rather than on changes in valuation. If the market’s fair ratio becomes the reference point, there is limited headroom for significant upward revaluation based on earnings alone.

Against peers, SRCE’s P/E is lower than the sector average, which hints at a discount. Compared to its own fair ratio, the market is only somewhat optimistic. Investors should weigh whether the market will re-rate further or recognize current levels as justified.

Explore the SWS fair ratio for 1st Source

Result: Price-to-Earnings of 10.3x (ABOUT RIGHT)

However, slower earnings growth or a downturn in lending could quickly challenge the current optimism seen in 1st Source’s valuation.

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

Another View: The SWS DCF Model Says Undervalued

Taking a step back from earnings multiples, our DCF model suggests 1st Source is valued at just $62.09 a share today, but its fair value could be around $131.20. That’s a discount of more than 50 percent, which is a huge difference compared to the market’s nearly fair P/E. Does this mean the market is missing something, or is the DCF model too optimistic this time?

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 925 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own 1st Source Narrative

If you have a different perspective or want to make your own assessment, you can put together your own take in just a few minutes, or Do it your way.

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding 1st Source.

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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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