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Premier Financial: Earnings Outlook Appears Priced In

Mar. 02, 2021 8:20 AM ETPremier Financial Corp. (PFC)
Sheen Bay Research profile picture
Sheen Bay Research


  • A recovery in economic activity will likely drive the growth of commercial loans. However, the upcoming forgiveness of Paycheck Protection Program loans will hurt the loan balance.
  • The existing reserves will likely cover most of the upcoming pandemic-driven credit losses. As a result, the provision expense will likely normalize this year.
  • The December 2021 target price suggests a limited upside from the current market price. Additionally, Premier is offering a modest dividend yield.

Earnings of Premier Financial Corp. (NASDAQ: NASDAQ:PFC) will likely receive a boost from earning asset growth. The economic recovery will likely play a pivotal role in commercial loan growth. Further, the provision expense will likely decline because Premier Financial already has a sizable reserve for loan losses relative to the losses I expect for this year. Overall, I’m expecting the company to report earnings of $2.86 per share in 2021, up 3.7% from the core earnings of 2020. The year-end target price is quite close to the current market price; hence, I’m adopting a neutral rating on Premier Financial Corp.

Asset Mix Shift, PPP Forgiveness to Partly Offset Organic Growth in Loans

The vaccine rollout and resultant recovery in economic activity will likely drive commercial loans this year. On the other hand, the forgiveness of Paycheck Protection Program (“PPP”) loans will likely constrain loan growth. As mentioned in the fourth quarter’s investor presentation, Premier had $387 million of PPP loans outstanding at the end of December 2020, representing 7% of total loans. I’m expecting most of these loans to get forgiven in the first half of this year.

Further, the company has historically grown through merger and acquisition activity. Within the last five years, Premier has completed a merger of equals and an acquisition of a bank, as per details given on the company’s website. As there are no M&A announcements so far this year, I’m not incorporating any acquisitions in my loan growth estimates. Further, the management mentioned in the presentation that it planned to be prudent with respect to M&A.

The management mentioned in the fourth quarter’s conference call that it expected loans to grow by 3% to 4% excluding the impact of PPP. Considering the factors mentioned above and management’s guidance, I’m expecting net loans to increase by 1.7% by the end

This article was written by

Sheen Bay Research profile picture
Around 10 years of experience covering Banks and Macroeconomics. Passionate about discovering lucrative investments and generating alpha.

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