Northwest Bancshares: 6.9% Dividend Yield, But Earnings Outlook Is Negative

Core Viewpoint - Northwest Bancshares is expected to experience a decline in earnings due to margin pressure, but mid-single-digit loan growth will provide some support to the bottom line. The earnings per share (EPS) is projected to decrease by 13% year-over-year to $0.92 in 2024, followed by a modest increase of 2.2$0.94 in 2025. The stock is considered undervalued, and a buy rating is recommended due to a high dividend yield and potential price correction [11]. Financial Position - Net Loans are projected to grow from $10,802 million in FY22 to$12,282 million by FY25, reflecting a growth rate of 4.5% in FY25 [4]. - The net interest margin has declined for four consecutive quarters, with a drop of six basis points in Q1 2024. It is expected to remain stable before a rate cut late this year, with further declines anticipated in 2025 [4][5]. - Net interest income is expected to fall by 3.8% year-over-year in 2024, before rising by 2.5% in 2025 [6]. Loan Portfolio and Growth - The loan portfolio grew by 0.8% in Q1 2024, and it is anticipated that loan growth will match last year's performance, with a projected growth of 1.1% per quarter until the end of 2025 [12][13]. - Vehicle loans represent 17% of the total loan portfolio, which poses a higher credit risk compared to real estate loans. However, exposure to office loans is limited, keeping overall risk at a low to moderate level [8]. Dividend and Capital Position - The quarterly dividend has been maintained at $0.20 per share since Q2 2021, resulting in a dividend yield of 6.9$13.4 for the end of 2024, which implies a 16.0% upside from the current market price [17]. - The average price-to-earnings (P/E) ratio indicates a target price of $10.9 for the end of 2024, suggesting a 5.1$12.2 implies a 5.4% upside, leading to a total expected return of 12.4% when including the dividend yield [17].