On Monday, Merchants Bancorp (NASDAQ:MBIN) received a new stock rating from a major financial institution. Morgan Stanley (NYSE:MS) initiated coverage on the bank's shares with an Equalweight rating and set a price target of $54.00. This new target suggests a potential 24% upside from the stock's current trading level.
The financial firm noted that Merchants Bancorp's stock is trading at 7 times the next twelve months (NTM) consensus earnings per share (EPS), which is a 4 times discount compared to other companies covered by the firm. Since its initial public offering (IPO) in 2017, Merchants Bancorp has consistently traded at an average discount of 3.3 times.
Morgan Stanley's assessment is based on the expectation that the discount in Merchants Bancorp's stock price will decrease over time. This prediction hinges on the company's ability to maintain its higher EPS level across various macroeconomic conditions and the anticipated demonstration of improved credit quality within its portfolio.
The price target of $54.00 is derived from a valuation of 9 times Morgan Stanley's estimated 2025 EPS of $6.04 for Merchants Bancorp. This valuation reflects the firm's outlook on the company's financial future and the anticipated growth in earnings.
In summary, Morgan Stanley's coverage initiation and the establishment of a price target for Merchants Bancorp highlight the potential for stock price appreciation. The firm's analysis suggests that as the bank continues to demonstrate financial stability and credit quality, the market may adjust the valuation closer to that of its industry peers.
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