Sterne Agee Initiates Neutral Rating on First Interstate Bancsystem (FIBK)

Sterne Agee is out with a research report this afternoon, where it initiates a Neutral rating on First Interstate Bancsystem FIBK; it did not provide a price target for the stock. The SA analysts said that they view FIBK as a conservatively managed institution with dominant market share in Montana, several markets in Wyoming, and western South Dakota. They added that they believe some near-term credit challenges are largely reflected in the modest P/TB valuation, but also added that they anticipate it will be difficult for the shares to exhibit multiple expansion in the near term. As for valuation, the analysts remarked, “Thoughts on valuation. FIBK currently trades at an above average 18.1x 2011 estimates (15.6x for peers) but a below average P/TB of 1.15x (1.30x for peers). The current 2012 P/E of 9.9x approximates peers at 10.5x. FIBK shares have only been trading publicly since late March 2010, but we note an index of similar banks has traded at an average 14.4x FY1 estimates and 12.9x FY2 estimates over the past ten years. Our DCF model (see Exhibit 18) places present value of stock and dividends at $14.54, or about 9% above current levels.”