FRME
First Merchants Corporation
$40.14
Banks, Insurers & Asset Managers
85%
P/Tangible Book × ROE Quality
Moderate
·
Conviction
Undervalued
Trading 27.7% below fair value
You pay
$40.14
Bear
$38.86
Fair
$55.52
Bull
$72.18
Bear
$38.86
-3.2%
ROTCE 9.7% → 1.13x TBV
Fair
$55.52
+38.3%
ROTCE 13.0% → 1.77x TBV
Bull
$72.18
+79.8%
ROTCE 14.9% → 2.16x TBV
Key Value Driver
ROTCE (13.0%) vs. cost of equity (9.1%)
Implied Market Multiple
1.45x
Summary
Our base-case estimate uses P/Tangible Book × ROE Quality. We then blend that result with the average analyst price target of $49.00 from 11 analysts, using a 20% weight on analyst consensus. That produces an estimated intrinsic value of $55.52 per share.
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: $29.95 (48% 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