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Book Profits on This Mid-Cap Banking Stock – ONB

Feb 16, 2022 | Team Kalkine
Book Profits on This Mid-Cap Banking Stock – ONB

Old National Bancorp

Old National Bancorp (NASDAQ: ONB) is the holding company for Old National Bank, which has 162 locations around the United States. Commercial and consumer loan and depository services, private banking, brokerage, trust, investment advising, and other standard banking services are among the company's offerings.

Why should investors Book Profits?

  • Decline in Net Interest Margin (NIM): The company has reported a decrease in net interest margin to 2.89% in FY21 from 3.18% in FY19. Compared to the industry median of 3.21%, it also operates at a lower margin. When interest rates rise, loans become more expensive, making savings a more appealing option, and net interest margins fall.
  • Fall in Deposits Growth: The company reported a decrease in deposits growth of 9.0% in FY21 vs. 17.1% in FY20, indicating problems in liquidity management.
  • Drop-in Loans: The company reported a 1.34% decline in total loans to USD 13.60 billion as of December 31, 2021, compared to USD 13.79 billion as of December 31, 2020, which could impact the asset side of the company's balance sheet.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

ONB share price has surged 13.91% in the past six months and is currently trading in the higher-band of the 52-week range of USD 15.53 to USD 21.28. We have valued the stock using the Price/Book Value-based relative valuation methodology and arrived at a target price of USD 17.11. Considering the company's fall in deposits and loans, net interest margin, and current valuation, we recommend a "Sell" rating on the stock at the closing price of USD 18.92 as of February 15, 2022.