KBW analyst Christopher McGratty rates First Midwest outperform and has a $12.50 price target on the stock.

He says that "the risk-reward remains favorable" because of relatively low stock price multiples, "particularly given the event-driven catalyst that may emerge," if the company pursues a bulk sale of nonperforming loans.

McGratty notes that First Midwest has a Tier 1 common equity ratio of 10.2% and a tangible common equity ratio of 8.9% as of June 30.

The analyst says that means the bank has more than enough capital "to absorb any potential capital hit." What's more, he says, a potential bulk sale of problem loans could "serve as a meaningful positive catalyst for the shares."

McGratty estimates that First Midwest will earn 44 cents a share for all of 2012, followed by EPS of a $1.00 in 2013.

First Midwest's shares closed at $11.52 Friday, which means they have gained 14% year to date, following a 12% decline during 2011.

FMBI Chart FMBI data by YCharts

The shares trade for 1.2 times their reported June 30 tangible book value of $9.30, and 13 times the consensus 2013 earnings estimate of 89 cents a share, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is 45 cents.

Interested in more on First Midwest Bancorp? See TheStreet Ratings' report card for this stock.

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-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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