Revisiting a Previous Pick -- Now at an Even Lower Price

I thought Farmers National Banc Corp. looked attractive back in August. It's even cheaper now in the absence of any negative company-specific news. In fact, FMNB is finishing out its best year ever. Dividends, book value and EPS have never been higher. Each metric grew substantially since 2014. Despite the excellent growth recent market action has taken Farmers National to one of its lowest valuations ever. Continuous shareholders have reasonable gains, but they nowhere match up with the amount of value created over the past eight years. That leaves plenty of room for a stunningly good catch-up move higher. What Is FMNB Really Worth? Throw out the stock's abnormally high P/E in 2015, due to a subpar EPS year, and a typical multiple ran about 12.6x, accompanied by around 2.16% in current yield. At its Oct. 6, 2022, quote of $12.77 FNMB was asking only 6.7x its 2022 estimate. If Yahoo Finance's 2023 projection holds true FMNB's forward P/E is only 6.1x. Note: to be conservative, I overrode Value Line's 2022 and 2023 estimates for FMNB of $1.95 and $2.13. If FMNB simply reverts to a still below average 12.5 P/E on its 2023 estimate it could easily fetch north of $26 by winter of 2024. That more than double today's quote plus any dividends (at about 5% annualized) collected along the way. All of FMNB's previous best buying opportunities (green-starred above) came at multiples equal to, or higher, than today's. Its Covid-panic low of $9.80 sported exactly the same P/E as now while paying a tad lower yield. Buyers back then later got the chance to sell at more than twice what they paid. I'm thinking that scenario could easily play out again. Yahoo Finance likes FMNB. They call it undervalued while looking for a rebound to $17.38 over the coming year. Hitting that very modest goal over a full 12 months would deliver a very acceptable 41.2% total return. That goal appears ultra-conservative based on FMNB's prior trading history. It assumes only an 8.3x multiple based on Yahoo's own 2023 estimate. Independent research house Morningstar rates FMNB as a 4-star buy right now, but would up it to their highest 5-star rating if it falls just a few cents more, to below $12.65. Morningstar doesn't provide year-ahead goal prices but does let us know what they believe each stock covered is worth right now. For Farmers National that figure is $18.22 per share. Assume a full year to achieve that and, like Yahoo Finance's total return projection there is well greater than 40% awaiting. Still not sold on FMNB? Since May 10, 2022, there were nine insider buys on the stock and zero insider sales. Totaled up, those knowledgeable investors ponied up a combined $553,345 to buy 37,415 shares. Their average cost was $14.79. As of the time of my writing we could own the same good-quality, high-yielding shares at a solid 13.7% discount to what the insiders paid. That's the beauty of ugly bear markets. They often make even terrific company shares go inexplicably below fair value for those brave enough to accept Mr. Market's gift. I added to my FMNB positions this week as the stock carved out a new more than two-year low. Options are available out as far as March 2023, but they trade thinly. Use limit orders if you decide to play with them.

Revisiting a Previous Pick -- Now at an Even Lower Price

This is the beauty of ugly bear markets. They often make even terrific company shares go inexplicably below fair value.

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