Research on Applied Graphene Materials (AGM) from Sidoti & Company
AGM's diversifying loan volume will continue to keep net effective spread (NES) elevated above historical levels, in our view, fostering strong earnings power. We introduce our 2028 estimates, reflecting strong volume growth driving a 10% increase in core EPS to $24.63. A higher yielding portfolio mix will support stronger earnings power and a mid-teens ROE, in our view. Our forecast aligns with AGM's long-term guidance of volume growth at an 8%-11% CAGR and a revenue CAGR of 10%-12% through 2030, driving strong core earnings growth. We estimate the efficiency ratio to be about 28% in 2026-2028. We estimate robust volume growth continued in 3Q:26. Agricultural credit conditions remain mixed, supporting strong Farm & Ranch volume. Credit migration remains a key variable in our outlook, considering the uncertainty facing agricultural borrowers from commodity prices, geopolitical uncertainty, and elevated input costs. We estimate stable credit expenses in 3Q:26. Our 3Q:26 core EPS estimate of $5.24 implies 16% year-over-year growth due to normalized credit expenses and strong operating leverage. We forecast leverage (debt to capital) to remain stable in the mid-90% range. AGM's planned credit risk transfer program (for Farm & Ranch assets) should provide for a cheaper and more flexible source of capital. We maintain our $254 price target, based on a roughly 10x multiple applied to our 2028 core EPS estimate of $24.63 (was 11x our 2027 EPS estimate of $22.54). We trim our multiple as we shift our base valuation year to 2028. Our moderate risk rating balances secular growth from diversification trends toward higher spread volume with economic uncertainty and commodity volatility.
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