At a market capitalization of only $7.5 billion, with earnings strong ($10.19 per share over the last 12 months) and growing (earnings nearly quadrupled last quarter) — and a bargain-basement valuation of just 5.6 times trailing earnings to boot — Evansville, Indiana-based consumer finance and insurance company OneMain Holdings (OMF) fits the definition of a “value stock” to a “T”.
But would you believe OneMain is also a “Perfect 10” stock?
TipRanks’ proprietary model for judging equity attractiveness, the “Smart Score” that incorporates factors including the opinions of analysts, bloggers, and TipRanks investors, as well as both technical and fundamental analysis, gives OneMain Holdings a top score of 10 out of 10.
It’s no wonder, then, that Wall Street is also getting more positive on the stock.
In a note out Thursday, Deutsche Bank analyst Meng Jiao initiated coverage of OneMain stock with a “buy” rating and a $75 price target implying 30% upside for the $57 stock. In part, Jiao’s optimistic because of things OneMain has already done. For example, the analyst notes that OneMain is a “market share leader” with returns on total common equity (ROTCE) that exceed those of its peers. OneMain also operates in “an unparalleled strong credit environment” in which consumers, who paid down a lot of debt during the pandemic, are now “re-leveraging.”
And this analyst is also enthused about what OneMain will do in the future, and in particular, about its new subprime credit card, which the analyst believes will prove attractive and successful in a consumer finance market that is “fragmented” among multiple smaller competitors.
Currently, says Jiao, about 86% of OneMain’s total revenues come from its traditional consumer finance and insurance businesses, but the company is now working “to build out/strengthen other revenue streams in addition to personal lending,” including this new credit card that is “designed for the near prime consumer.”
OneMain estimates that there is a $430 billion market for credit card customers with “near prime” (aka subprime, but not too “sub”) credit — quite an attractive proposition for a finance company whose entire revenues over the last 12 months amounted to barely $3.4 billion. OneMain also has a guaranteed entrée into this market via its existing customer base. For example, the company received 12 million applications for personal credit over the past year, but approved loans for only 1.5 million of those applications — leaving 10.5 million potential customers who might be interested in subprime credit cards instead of loans.
In Jiao’s opinion, this new credit card market “could represent quite an attractive opportunity” for OneMain. To gauge precisely how attractive, Deutsche Bank commissioned an online survey of 1,018 U.S. considers last month. Through this survey, the bank confirmed that “there is significant demand for the type of credit card product that OMF is rolling out currently” among consumers with FICO scores below 600 — and even ranging as high as 659.
This gives Jiao confidence that OMF’s new card “will be met with strong customer demand as the company works towards a full rollout in FY22” — enough confidence to rate the stock a “buy.” (See OMF stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.