At present, the banking industry is facing a challenging operating backdrop amid high interest rates and waning loan demand. Despite this, one can consider fundamentally solid lenders like Mid Penn Bancorp, Inc. MPB. The company is well-placed to benefit from solid loan and deposit balances, high interest rates and a strong balance sheet.

Over the past month, the Zacks Consensus Estimate for MPB’s earnings has remained unchanged for both 2023 and 2024. The stock presently carries a Zacks Rank #2 (Buy).

Looking at its price performance, over the past six months, shares of Mid Penn Bancorp have lost 18.5% compared with the industry’s 6.6% fall.

Image Source: Zacks Investment Research

Here are some factors that make MPB a viable investment option right now:

Earnings Strength: Over the past three to five years, Mid Penn Bancorp recorded earnings growth of 15.5%, higher than the industry average of 12.3%. While the company’s earnings are projected to decline 30.8% this year, the trend will reverse after that. In 2024, earnings are expected to grow 25.8%.

Revenue Growth: Mid Penn Bancorp’s revenues witnessed a CAGR of 31.7% over the last five years (2017-2022). The uptrend continued in the first six months of 2023. MPB’s top-line improvement is backed by the acquisitions completed during this period, decent loan demand and higher rates.

Revenues are expected to decline 3.2% in 2023 but are likely to grow 9.1% next year.

Steady Capital Distributions: Mid Penn Bancorp’s ability to generate positive cash flows and enhance shareholder value through regular dividend payments and share repurchases is commendable. In 2020, the bank authorized a share repurchase plan worth $15 million. As of Jun 30, 2023, the company had repurchased 0.4 million shares at an average price of $22.92 per share under the program. It had $5.5 million worth of buyback authorization remaining as of the same date.

In addition to share repurchases, MPB pays regular quarterly dividends. Over the last five-year period, the company raised the dividend four times, with an annualized dividend growth rate of 5.3%. Further, its dividend payout ratio is 24% of earnings.

Strong Leverage: Currently, Mid Penn Bancorp has a debt/equity ratio of 0.20. This compares favorably with the industry average of 0.36. Given the relatively low debt/equity ratio than its peers, the company is expected to be financially stable, even in adverse economic conditions.

Favorable Valuation: The Mid Penn Bancorp stock looks undervalued right now compared with the industry. It currently has a price/book ratio of 0.61, lower than the industry average of 0.82. Also, the company’s price/sales ratio of 1.52 is below the industry’s 1.67.

Further, MPB stock has a Value Score of B. Our research shows that stocks with a Value Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.