Index removals put recent earnings and buyback news in focus

First Merchants (FRME) has just been removed from multiple Russell growth indices, shortly after reporting solid early 2026 results and outlining a fresh share repurchase plan. Together, these developments may shape how investors now view the stock.

At a share price of $44.29, First Merchants has seen an 18.11% year to date share price return and a 13.95% total shareholder return over the past year, while its 76.11% three year total shareholder return points to momentum that investors are weighing against recent index removals and the new buyback plan.

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With First Merchants beating revenue and EPS expectations, expanding net interest margin, and launching a fresh buyback after index removals, are you looking at an underappreciated regional bank stock, or one where the market already prices in future growth?

Preferred P/E of 14.2x for First Merchants: Is it justified?

First Merchants is trading on a P/E of 14.2x at a last close of $44.29, which sits between cheaper US banks as a group and pricier closer peers of similar profile. That places this regional lender in an interesting middle ground where investors are weighing index removal, earnings forecasts and dividend income against what the current multiple implies.

The P/E ratio links the share price to earnings per share. It is effectively the price investors are paying today for each dollar of First Merchants' earnings. For banks, this is a commonly watched yardstick because earnings are closely tied to interest margins, credit quality and fee income, all of which are key drivers of long term shareholder returns.

Against the wider US banks industry, First Merchants looks expensive, with its 14.2x P/E above the 12.3x industry average. However, the same multiple is below the 16.9x average for its selected peer group, and also below the estimated fair P/E of 15.7x from regression analysis. That combination suggests the current market price is assigning a higher value than the broad sector, but still leaving some room for the P/E to drift closer to levels implied by peers and the fair ratio if the investment case continues to hold.

Result: Price-to-earnings of 14.2x (ABOUT RIGHT)

However, First Merchants still faces key risks, including potential pressure on credit quality within its community banking footprint and any setback to earnings that weakens the current P/E case.

Another view on First Merchants' value

While the 14.2x P/E suggests First Merchants is roughly in line with its fair ratio, the SWS DCF model points in a different direction, with an estimated future cash flow value of $76.59 versus the current $44.29 share price, implying the stock trades at a sizable discount.

These two methods tell slightly different stories: one is tied to current earnings and peers, and the other is based on projected cash flows. Which picture do you feel more comfortable leaning on as the index exit, earnings profile and buyback all play out?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out First Merchants for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 41 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mix of positives and concerns around First Merchants leaves you undecided, take the time to review the details yourself and form a clear opinion with 3 key rewards and 1 important warning sign

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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.