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Earnings Report: Mercantile Bank Corporation Missed Revenue Estimates By 6.3%

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Mercantile Bank Corporation (NASDAQ:MBWM) came out with its first-quarter results last week, and we wanted to see how the business is performing and what industry forecasters think of the company following this report. Results look mixed - while revenue fell marginally short of analyst estimates at US$40m, statutory earnings were in line with expectations, at US$0.73 per share. This is an important time for investors, as they can track a company's performance in its report, look at what experts are forecasting for next year, and see if there has been any change to expectations for the business. We've gathered the most recent statutory forecasts to see whether the analysts have changed their earnings models, following these results.

View our latest analysis for Mercantile Bank

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Taking into account the latest results, the current consensus, from the five analysts covering Mercantile Bank, is for revenues of US$177.1m in 2022, which would reflect a measurable 2.3% reduction in Mercantile Bank's sales over the past 12 months. Statutory earnings per share are forecast to decrease 8.8% to US$3.24 in the same period. In the lead-up to this report, the analysts had been modelling revenues of US$176.6m and earnings per share (EPS) of US$3.15 in 2022. So the consensus seems to have become somewhat more optimistic on Mercantile Bank's earnings potential following these results.

The consensus price target was unchanged at US$40.20, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. The most optimistic Mercantile Bank analyst has a price target of US$44.00 per share, while the most pessimistic values it at US$38.00. This is a very narrow spread of estimates, implying either that Mercantile Bank is an easy company to value, or - more likely - the analysts are relying heavily on some key assumptions.

Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 3.1% by the end of 2022. This indicates a significant reduction from annual growth of 8.3% over the last five years. Compare this with our data, which suggests that other companies in the same industry are, in aggregate, expected to see their revenue grow 7.6% per year. So although its revenues are forecast to shrink, this cloud does not come with a silver lining - Mercantile Bank is expected to lag the wider industry.

The Bottom Line

The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Mercantile Bank's earnings potential next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. The consensus price target held steady at US$40.20, with the latest estimates not enough to have an impact on their price targets.

With that in mind, we wouldn't be too quick to come to a conclusion on Mercantile Bank. Long-term earnings power is much more important than next year's profits. We have forecasts for Mercantile Bank going out to 2023, and you can see them free on our platform here.

You should always think about risks though. Case in point, we've spotted 1 warning sign for Mercantile Bank you should be aware of.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.