FRME
First Merchants Corporation
$39.60
Banks, Insurers & Asset Managers
85%
P/Tangible Book × ROE Quality
Moderate
·
Conviction
Undervalued
Trading 30.7% below fair value
You pay
$39.60
Bear
$40.00
Fair
$57.15
Bull
$74.30
Bear
$40.00
+1.0%
ROTCE 9.7% → 1.11x TBV
Fair
$57.15
+44.3%
ROTCE 13.0% → 1.75x TBV
Bull
$74.30
+87.6%
ROTCE 14.9% → 2.12x TBV
Adjust Assumptions
13.0%
9.1%
Key Value Driver
ROTCE (13.0%) vs. cost of equity (9.1%)
Implied Market Multiple
1.43x
Analyst Consensus (External Reference)
Never blended into the bear/base/bull estimates above.
Average Target (12 analysts)
$46.00
Divergence from AlphaVal
24%
Summary
With ROTCE of 13.0% vs. 9.1% cost of equity, fair P/TBV is 1.75x on $27.72 tangible book, implying $57.15 per share. DDM cross-check: $27.57.
Warnings
Traditional cash flow models don't work well for banks — lending activity distorts how much cash the business actually generates.
Common valuation shortcuts don't apply here — for banks, interest payments are a core business cost, not overhead.
Dividend-based valuation: $27.57 (52% below our primary estimate). Large gaps suggest the dividend may not fully reflect the company's value.
Key Risks
- Book value quality matters as much as level — check loan loss reserves
- Interest rate sensitivity creates non-linear earnings surprises
- Insurance reserving is actuarial, not financial — errors emerge slowly