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Outperform rating upheld for OneMain stock as analyst revises provision estimates

EditorAhmed Abdulazez Abdulkadir
Published 10/10/2024, 12:28
OMF
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On Thursday, RBC Capital adjusted its outlook on OneMain Holdings, Inc. (NYSE:OMF), reducing the price target to $58 from the previous $60, while retaining an Outperform rating on the stock. The adjustment follows a reevaluation of the company's loan book and provisions for finance receivable losses, leading to a revision of earnings estimates.

The firm's analyst noted the anticipation of a slight decline in net charge-offs (NCOs) by 2025, although visibility remains limited to the upcoming two quarters. OneMain's broad product suite is designed to position it as the preferred lender for nonprime customers, a strategy that RBC Capital supports.

The analyst highlighted OneMain's robust business model and its potential for capital generation as key reasons for continuing to recommend the stock with an Outperform rating. Despite the lowered price target, the firm's stance indicates a belief in the company's enduring performance.

OneMain is focused on serving nonprime customers with a variety of loan products. The company's approach to lending and its strategic positioning in the market form the basis for RBC Capital's positive outlook.

The revised price target of $58 reflects the latest assessment of OneMain's financial projections and market strategies. This update provides investors with RBC Capital's current expectations for the company's stock performance.

In other recent news, OneMain Holdings has seen a series of significant developments. Barclays downgraded OneMain's stock from Overweight to Equalweight, reducing the price target to $46 due to slower progress in net charge-offs. This adjustment led to an anticipated decrease in earnings per share by approximately 11%.

Meanwhile, OneMain reported a 7% year-over-year increase in total revenue to $1.4 billion in Q2 2024, backed by improved credit metrics due to tightened underwriting standards. The company also secured $1.9 billion through debt issuances and projects its receivables to reach $24.5 billion by the end of the year.

In governance news, OneMain announced the unexpected resignation of Aneek S. Mamik from its Board of Directors. BTIG maintained a Neutral stance on OneMain shares, with a third-quarter earnings per share projection of $1.16. However, BTIG also expressed concerns about OneMain's delinquency rates, suggesting that their 2025 loss rate forecast of 6.85% might be optimistic.

Lastly, OneMain's credit card and auto finance sectors are anticipated to contribute significantly to future growth, according to analyst Jenny Osterhout.

InvestingPro Insights

Adding to RBC Capital's analysis, InvestingPro data reveals that OneMain Holdings (NYSE:OMF) currently has a market capitalization of $5.5 billion and a P/E ratio of 9.44, suggesting the stock may be undervalued relative to its earnings. This aligns with RBC's Outperform rating, despite the lowered price target.

InvestingPro Tips highlight that OMF pays a significant dividend to shareholders, with a current dividend yield of 9.05%. This high yield could be attractive to income-focused investors, especially considering the company's profitability over the last twelve months and analysts' predictions of continued profitability this year.

However, it's worth noting that stock price movements for OMF are quite volatile, which investors should consider alongside RBC's positive outlook. The company's strong return over the last five years, as pointed out by another InvestingPro Tip, supports RBC's view on OneMain's robust business model and capital generation potential.

For investors seeking a deeper understanding of OneMain's financial health and market position, InvestingPro offers 5 additional tips that could provide valuable insights for decision-making.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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