What is FMBI's Intrinsic value?

First Midwest Bancorp Inc (FMBI) Intrinsic Value Analysis

Executive Summary

As of May 31, 2025, First Midwest Bancorp Inc's estimated intrinsic value ranges from $20.88 to $26.01 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $26.01 +20.9%
Dividend Discount Model (Stable) $20.88 -2.9%

Is First Midwest Bancorp Inc (FMBI) undervalued or overvalued?

With the current market price at $21.51, the stock appears to be moderately undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate First Midwest Bancorp Inc's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.2% 3.7%
Equity market risk premium 4.2% 5.2%
Adjusted beta 0.94 0.98
Cost of equity 7.1% 9.3%
Cost of debt 5.0% 5.0%
Tax rate 24.7% 25.5%
Debt/Equity ratio 0.1 0.1
After-tax WACC 6.8% 8.8%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 40.2%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.2%
  • Long-term growth rate: 1.0%
  • Fair value: $26.01 (20.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.3% (Low) to 7.1% (High)
  • Long-term growth rate: 0.5% (Low) to 1.5% (High)
  • Fair value range: $14 to $28
  • Selected fair value: $20.88 (-2.9% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $2456M
Enterprise Value $2691M
Trailing P/E 12.31
Forward P/E 11.32
Trailing EV/EBITDA 0.00
Current Dividend Yield 326.55%
Dividend Growth Rate (5Y) 25.57%
Debt-to-Equity Ratio 0.10

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 57% $5.20
Dividend Discount Model (Stable) 43% $3.13
Weighted Average 100% $23.81

Investment Conclusion

Based on our comprehensive valuation analysis, First Midwest Bancorp Inc's weighted average intrinsic value is $23.81, which is approximately 10.7% above the current market price of $21.51.

Key investment considerations:

  • Conservative capital structure (Debt/Equity of 0.10)
  • Historical dividend growth of 25.57%

Given these factors, we believe First Midwest Bancorp Inc is currently moderately undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.