Old National Showing Some Loan Growth, But Execution Of Its Upcoming Merger Is The Major Driver

 

On its own, Old National Bancorp (ONB) is more of an “is what it is” sort of bank, with a well-earned reputation for conservative underwriting, but pretty lackluster return, growth, and share price performance track records. That can work for some investors, but now there’s a major driver on the horizon above and beyond the recovery from the pandemic lows – the successful execution of the merger-of-equals with First Midwest Bancorp (FMBI) and the possibility that this could signal a greater willingness from the bank to take a more aggressive approach to growth.

Not only could the First Midwest deal start Old National on a more exciting future trajectory, the shares look pretty conservatively-valued today. The stock has typically traded at around 12x to 13x forward earnings, and while that modest discount to other banks of similar size isn’t necessarily unreasonable (with a lower growth outlook) and neither is a slight discount for the risks of the FMBI deal, a 10.4x forward PE on my ’22 EPS estimate seems low to me.

 

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Old National Showing Some Loan Growth, But Execution Of Its Upcoming Merger Is The Major Driver