Barclays downgrades OneMain stock as credit performance recovery slows

On Tuesday, Barclays adjusted its stance on OneMain Holdings, Inc. (NYSE:OMF), downgrading the stock from Overweight to Equalweight and reducing the price target to $46 from the previous $52. The revision was prompted by a reassessment of the expected improvement in the company's credit performance.

The downgrade is a result of slower-than-anticipated progress in net charge-offs (NCOs) returning to the targeted 6-7% range. OneMain's NCOs had risen above 8% in the fiscal year 2024, and the initial Overweight rating was predicated on a shift towards a more favorable performance. However, recent delinquency trends suggest that the anticipated improvement will take longer to achieve.

In light of these trends, Barclays has revised its fiscal year 2025 NCO estimates upward, which in turn has led to a projected decrease in earnings per share (EPS) by approximately 11%. This reassessment of OneMain's financial outlook has necessitated the lower price target.

The analyst from Barclays provided insight into the decision, noting the original thesis for the Overweight rating was based on an expected migration of net charge-offs back to the target level as a greater portion of the portfolio transitions to the better-performing frontbook. However, the current delinquency trends have led to the conclusion that the path to the target range will be longer than previously expected.

OneMain Holdings, a financial services company, has been under scrutiny as analysts monitor its portfolio performance and credit metrics, key indicators of the company's financial health and future earnings potential. The updated price target of $46 reflects Barclays' recalibrated expectations for the company's financial trajectory.

In other recent news, OneMain Financial reported a 7% year-over-year increase in total revenue to $1.4 billion in Q2 2024. The company secured $1.9 billion through debt issuances and projects its receivables to reach $24.5 billion by the end of the year.

These positive developments were boosted by tightened underwriting standards that led to improved credit metrics. BTIG maintained a Neutral stance on OneMain shares, with a third-quarter earnings per share (EPS) projection of $1.16.

In an unexpected turn of events, OneMain announced the resignation of Aneek S. Mamik from its Board of Directors, marking a significant change in the company's governance.

BTIG expressed concerns about OneMain's delinquency rates, which were the second-highest since 2016, and suggested that their 2025 loss rate forecast of 6.85% might be overly optimistic.

Finally, OneMain's credit card and auto finance sectors are anticipated to be significant contributors to future growth. Analyst Jenny Osterhout expressed confidence in decreasing losses for the rest of the year, suggesting potential growth in the near future. These are among the recent developments that investors might want to consider.

InvestingPro Insights

Recent data from InvestingPro offers additional context to Barclays' downgrade of OneMain Holdings (NYSE:OMF). Despite the downgrade, OMF maintains a relatively low P/E ratio of 9.59, suggesting the stock may still be undervalued. This is further supported by the company's strong dividend yield of 8.85%, which aligns with the InvestingPro Tip that OMF "pays a significant dividend to shareholders."

However, investors should note that 8 analysts have revised their earnings downwards for the upcoming period, which may explain Barclays' more cautious stance. This information, combined with the InvestingPro Tip that "stock price movements are quite volatile," underscores the importance of careful consideration when investing in OMF.

On a positive note, OMF has demonstrated profitability over the last twelve months and analysts predict the company will remain profitable this year. The company's revenue for the last twelve months stands at $2,513 million, with a robust gross profit margin of 92.24%.

For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide valuable insights into OMF's financial health and market position.

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