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Zack’s Bull of the Day: Heartland Financial

Earnings estimates have been rising for Heartland Financial USA (NASDAQ:HTLF) following strong fourth quarter results on January 26. Not only was loan growth solid, the net interest margin was relatively stable despite a difficult rate environment, and credit quality continued to improve.

Heartland is a Zacks Rank #1 (Strong Buy) stock. Additionally, shares look very reasonably priced at just 12x forward earnings and 1.7x tangible book value.

Heartland Financial USA, Inc. is a bank holding company that operates nine independent bank charters and one consumer finance company. It currently has 86 banking locations in Iowa, Illinois, Wisconsin, New Mexico, Arizona, Montana, Colorado, Minnesota, Kansas and Missouri as well as loan production offices in California, Nevada, Wyoming, Idaho, North Dakota, Oregon, Washington and Nebraska.

Fourth Quarter Results

Heartland delivered better-than-expected fourth quarter results on January 26. Earnings per share came in at $0.64, beating the Zacks Consensus Estimate of $0.57. It was a 52% increase over the same quarter last year.

Net interest income jumped 13% year-over-year. The net interest margin declined by two basis points from the prior quarter but was up 12 basis points from Q4 2013. Loan growth was solid at an annualized rate of 8.3%. This was due in part to strength in commercial and commercial real estate loans.

Credit quality continued to improve with non-performing loans declining from 1.21% to 0.63% of total loans. The allowance for loan losses at the end of the year was 1.07% of total loans compared to 1.19% at the end of 2013.

Rising Estimates

Following strong Q4 results, analysts revised their estimates meaningfully higher for both 2015 and 2016. This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2015 Zacks Consensus Estimate is now $2.42, up from $2.28 before the report. The 2016 consensus is currently $2.62, up from $2.46 over the same period.

Attractive Valuation

Shares of Heartland Financial USA are trading near their 52-week high after the strong Q4 report. But the valuation picture still looks reasonable.

The stock trades at just 12x 12-month forward earnings, which is a discount to the Midwest bank median of 14x. And its price to tangible book ratio of 1.7 is below the peer group multiple of 2.4. Heartland generated a 12.0% return on tangible equity in 2014 compared to the peer group median of 12.2%.

The Bottom Line

With improving fundamentals, solid earnings momentum and attractive valuation, Heartland Financial USA offers investors a lot to like.

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