On Tuesday, Velocity Financial (NYSE:VEL) saw its price target increased by BTIG to $23.00, up from the previous $20.00, while the firm maintained a Buy rating on the stock.
The adjustment reflects an anticipated 10% increase in earnings for the next year, with earnings per share (EPS) expected to rise to $3.00 from an earlier estimate of $2.75, compared to the approximate $2.00 per share for the fiscal year 2024.
The analyst from BTIG highlighted that Velocity Financial's stock valuation has shown remarkable stability amidst recent interest rate hikes. This contrasts with other residential and commercial lenders, whose forward loan production might be more adversely affected by the current financial environment. According to the analyst, Velocity Financial's valuation already accounts for projected earnings and portfolio growth.
BTIG noted the possibility of risk if the delinquency pipeline expands, but also pointed out the potential for upside. This could come from quicker resolution times for existing inventory and a scenario where home prices see significant strengthening.
The analyst believes that the current valuation could warrant a higher and more sustainable premium if commercial mortgage-backed securities (CMBS) spreads tighten further, potentially accelerating deal activity and enhancing earnings visibility.
The commentary from BTIG also emphasized that, despite the potential risks, the current valuation of Velocity Financial suggests that the market has factored in expectations for earnings and portfolio expansion. This implies that any increase in delinquencies could pose a risk, yet there remains an opportunity for upside if the housing market remains robust.
In summary, BTIG's revised price target for Velocity Financial is based on an optimistic outlook for the company's earnings growth and resilience in its stock valuation, even as it acknowledges the risks and potential for increased earnings should market conditions prove favorable.
In other recent news, Velocity Financial reported a remarkable 64% surge in loan origination volumes during its Q3 earnings call, reaching a total of $476.8 million. This coincided with a 29% increase in net interest income. The company's net portfolio also expanded by 22%, with a weighted average loan-to-value ratio of 63%. Earnings climbed by 31%, while the non-performing loan rate was held steady at 10.6%.
Velocity Financial anticipates surpassing its $5 billion UPB portfolio goal by 2025, evidenced by over 900 applications for more than $450 million in UPB received in October alone. The company also expects strong demand to persist, projecting over $150 million in government-insured multi-loan originations in 2025. However, risks associated with non-performing loans in foreclosure, which can vary in duration, were also noted.
Despite potential market fluctuations, the management team expressed confidence in their competitive position and ongoing demand for their products. The company's hedging strategy in place to counter interest rate volatility and a dedicated special servicing team to manage assets in foreclosure were highlighted as key strategies. The next quarterly update from Velocity Financial is anticipated at the beginning of the subsequent year.
InvestingPro Insights
Velocity Financial's recent performance and financial metrics align well with BTIG's optimistic outlook. According to InvestingPro data, the company's revenue growth stands at an impressive 35.27% over the last twelve months, with a strong gross profit margin of 76.7%. This robust financial performance supports BTIG's projection of increased earnings for the coming year.
InvestingPro Tips highlight that Velocity Financial is trading at a low P/E ratio relative to its near-term earnings growth, with a current P/E ratio of 10.79. This aligns with BTIG's assessment that the stock's valuation already accounts for projected earnings and portfolio growth. Additionally, the company's stock is trading near its 52-week high, with a one-year price total return of 39.09%, reflecting investor confidence in line with BTIG's positive outlook.
It's worth noting that Velocity Financial's liquid assets exceed its short-term obligations, indicating financial stability. This factor could provide a buffer against potential risks mentioned in the article, such as an expanding delinquency pipeline.
For investors seeking more comprehensive analysis, InvestingPro offers 7 additional tips for Velocity Financial, providing deeper insights into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.