Old National Bancorp (NASDAQ:ONB), a prominent player in the U.S. Mid-Cap Banks sector with a market capitalization of $7.47 billion, has been making strategic moves to strengthen its market position and drive growth. The company's recent acquisition of Bremer Financial Corp has caught the attention of analysts, who see potential for enhanced profitability and market performance. This comprehensive analysis examines Old National Bancorp's current standing, future prospects, and the factors influencing its stock performance. According to InvestingPro, ONB has demonstrated impressive momentum with a 20.21% return over the past six months, suggesting strong market confidence in its strategic direction.
Recent Acquisition of Bremer Financial Corp
In a significant development announced on November 26, 2024, Old National Bancorp revealed its plans to acquire Bremer Financial Corp for $1.4 billion. This strategic move is expected to expand ONB's core deposit footprint and enhance its profitability. The deal's structure, which includes a forward sale component, resembles previous transactions in the banking sector and is designed to supplement capital without significantly diluting current shareholders' value.
The acquisition is valued at approximately 1.00x price to tangible book value (P/TBV) and a 2025 estimated price-to-earnings (P/E) multiple of 9.7x, excluding cost savings. These metrics suggest that the deal is reasonably priced compared to similar transactions in the industry. Analysts anticipate that the Bremer acquisition will close in mid-2Q25, potentially improving Old National Bancorp's net interest margin (NIM) by approximately 20 basis points upon completion.
Financial Performance and Outlook
Old National Bancorp has demonstrated solid financial performance in recent quarters, maintaining a healthy P/E ratio of 13.89x and achieving a return on equity of 9%. The company's fourth-quarter results for 2024 were described as strong by analysts, setting a positive tone for the coming year. Looking ahead to 2025, guidance suggests a low- to mid-single-digit core operating leverage over the next two years, indicating potential for improved efficiency and profitability. InvestingPro analysis reveals that ONB has maintained dividend payments for 42 consecutive years, demonstrating consistent shareholder returns with a current dividend yield of 2.39%.
Earnings per share (EPS) estimates for the company are encouraging. For the first fiscal year (FY1), analysts project an EPS of $1.99, while the second fiscal year (FY2) estimate stands at $2.72. These projections reflect expectations of steady growth and improved financial performance.
The company's net interest margin has been a focal point for analysts. The anticipated 20 basis point improvement in NIM following the Bremer acquisition is expected to contribute positively to Old National Bancorp's bottom line. Additionally, the bank has demonstrated strong organic deposit growth, which has helped maintain stable margins even in a competitive environment.
Market Position and Growth Strategy
Old National Bancorp's market capitalization of approximately $7.47 billion positions it as a significant player in the U.S. Mid-Cap Banks sector. The company's growth strategy appears to be centered on strategic acquisitions and organic expansion. Currently trading near its 52-week high of $24.16, InvestingPro's Fair Value analysis suggests the stock is slightly undervalued, indicating potential upside for investors. For a deeper understanding of ONB's valuation, explore our comprehensive undervalued stocks list and detailed Pro Research Report, available to InvestingPro subscribers.
The Bremer acquisition is seen as a key component of this strategy, enhancing ONB's market presence and financial position. Analysts note that this move could lead to significant cost savings and synergies, potentially driving long-term value for shareholders.
In addition to acquisitions, Old National Bancorp has been focusing on organic growth. The company has reported decent loan growth and strong organic deposit growth, which are crucial factors in maintaining and expanding its market share. Analysts expect accelerating loan growth going into 2026, suggesting confidence in the bank's ability to capitalize on market opportunities.
Credit Quality and Risk Management
While Old National Bancorp's overall financial health appears robust, analysts have noted mixed trends in credit quality. However, these trends are generally considered manageable, indicating that the bank's risk management practices are effective.
The company's ability to manage credit migration effectively, particularly following the merger with CapStar, has been highlighted as a positive factor. This demonstrates ONB's capacity to integrate new assets while maintaining prudent risk management practices.
Integration Challenges and Opportunities
As with any major acquisition, the integration of Bremer Financial Corp presents both challenges and opportunities for Old National Bancorp. The successful integration will be crucial for realizing the projected cost savings and operational synergies.
Analysts will be closely monitoring the integration process, as it could impact short-term performance. However, the potential benefits of an expanded core deposit footprint and enhanced market presence are seen as significant long-term positives for the company.
Bear Case
How might integration challenges impact ONB's short-term performance?
The integration of Bremer Financial Corp into Old National Bancorp's operations is a complex process that could pose short-term challenges. Merging different corporate cultures, aligning systems and processes, and managing potential redundancies are all factors that could temporarily affect efficiency and profitability.
During the integration period, there may be increased operational costs as the company invests in harmonizing systems and retraining staff. Customer attrition is another risk, as some clients may choose to switch banks during the transition. These factors could potentially lead to a temporary dip in earnings or slower-than-expected realization of synergies, which might impact the stock price in the short term.
What risks does ONB face in realizing projected cost savings from acquisitions?
While cost savings are a key rationale behind many bank mergers, achieving these savings can be challenging. Old National Bancorp may face several risks in realizing the projected cost savings from its acquisitions, including the Bremer deal.
Unexpected integration costs could erode anticipated savings. For instance, technology integration often proves more complex and costly than initially estimated. Labor market conditions might make it difficult to achieve planned workforce reductions, a common source of merger-related savings. Additionally, regulatory requirements or market pressures could necessitate maintaining higher staffing levels or investing more in certain areas than originally planned.
If Old National Bancorp fails to meet its cost-saving targets, it could lead to disappointment among investors and potentially impact the stock's valuation.
Bull Case
How will the Bremer acquisition strengthen ONB's market position?
The acquisition of Bremer Financial Corp is poised to significantly enhance Old National Bancorp's market position in several ways. Firstly, it expands ONB's core deposit footprint, providing access to a broader customer base and potentially lower-cost funding. This expanded deposit base can support loan growth and improve the bank's overall funding profile.
Secondly, the acquisition increases ONB's scale, which can lead to improved operational efficiencies and greater negotiating power with vendors and partners. The larger combined entity may also be better positioned to invest in technology and innovation, crucial factors in competing in the modern banking landscape.
Lastly, the geographic expansion resulting from the Bremer acquisition could diversify ONB's risk profile and provide new growth opportunities in markets where Bremer has a strong presence. This diversification can make the bank more resilient to regional economic fluctuations and open up new avenues for cross-selling products and services.
What factors contribute to analysts' positive outlook on ONB's growth potential?
Analysts' optimistic view on Old National Bancorp's growth potential stems from several factors. The company's track record of successful acquisitions, including the recent CapStar merger and the pending Bremer deal, demonstrates its ability to execute on its growth strategy through M&A activities.
The projected acceleration in loan growth heading into 2026 is another key factor. This expectation suggests that ONB is well-positioned to capitalize on economic opportunities and expand its lending portfolio. The anticipated improvement in net interest margin, particularly following the Bremer acquisition, is expected to boost profitability.
Additionally, ONB's focus on organic growth, as evidenced by its strong deposit growth and stable core trends, indicates a solid foundation for sustainable expansion. The company's ability to maintain these positive trends while integrating new acquisitions speaks to the strength of its management team and operational capabilities.
Lastly, the guidance for low- to mid-single-digit core operating leverage over the next two years suggests that ONB is focused on improving efficiency alongside growth, which could lead to enhanced shareholder value over time.
SWOT Analysis
Strengths:
- Strong financial performance with solid core trends
- Successful track record of strategic acquisitions
- Robust organic deposit growth
- Effective credit risk management
Weaknesses:
- Mixed credit trends, although considered manageable
- Potential short-term integration challenges from acquisitions
Opportunities:
- Expansion of market presence through the Bremer acquisition
- Potential for significant cost savings and synergies
- Accelerating loan growth prospects
- Ability (OTC:ABILF) to leverage higher deposit betas at competitors for growth
Threats:
- Integration risks associated with mergers and acquisitions
- Potential economic downturn affecting credit quality
- Competitive pressures in the banking sector
- Regulatory changes impacting the financial services industry
Analysts Targets
- Barclays (LON:BARC): $27.00 (January 22, 2025)
- Citi Research: $27.00 (December 17, 2024)
- Barclays: $26.00 (November 26, 2024)
- RBC Capital Markets: $23.00 (October 23, 2024)
- Barclays: $24.00 (October 23, 2024)
- RBC Capital Markets: $22.00 (July 24, 2024)
- Barclays: $22.00 (July 24, 2024)
This analysis is based on information available up to January 22, 2025.
InvestingPro: Smarter Decisions, Better Returns
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