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2 Buy-Rated Financial Stocks to Scoop Up Now

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Financial services refers to companies that provide services broadly related to insurance, accounting, banking, brokerage, real estate, risk analysis, asset management, and investment. 

According to Research And Markets, the global financial services market is projected to reach $28.53 trillion by 2025, growing at a CAGR of 6% between 2020 – 2026. Investment in big data and further adoption of digitalization are projected to be the key growth drivers for the financial services market.

Moreover, year-to-date (YTD) the financial industry has outperformed the market, as evidenced by the 36.64% increase in the Financial Select Sector SPDR ETF (XLF), compared to SPDR S&P 500 Trust ETF (SPY) 23% gains over the same period.

In this article, I’ll analyze two financial stocks: OneMain Holdings, Inc. (OMF) and Sunlight Financial Holdings Inc. (SUNL).  Wall Street analysts predict both companies will see significant gains in the next year.

OneMain Holdings, Inc. (OMF)

Founded in 1920, OneMain Holdings, Inc is a financial service company that engages in consumer finance and insurance activities. Since the beginning of the year, shares of OneMain Holdings, Inc. are up about 10.57%, underperforming its benchmark and the broader market. 

Recent News

On October 26th, the company announced a secondary offering, selling about 10.01 million of its common stock. However, all of the selling shares were held by the company’s shareholders, thus OMF hadn’t received any proceeds. In addition, the company has agreed to purchase 1.87 million of its shares during the offering. 

Financial Overview & Valuation

The company’s total revenue for its fiscal third quarter has risen 10.2% YoY to $1.03 billion, standing in line with the Wall Street consensus. Also, the company’s Consumer Insurance segment generated a net income of $316 million, up 7.4% compared to the year-prior quarter. As a result, its Non-GAAP EPS came in at $2.37, beating Wall Street estimates by $0.09. Besides, OneMain Holdings is expected to pay an annual dividend of $2.80 a share, leading to a solid dividend yield of 5.31%, which outpaces the sector’s median threshold by about 2x. 

In terms of valuation, the company looks cheap compared to the sector, allowing investors to buy its shares with a higher margin of safety. For instance, OMF trades with a Forward P/E and P/S of 4.91x and 1.72x, respectively. These figures are well below the sector’s median of 11.57x and 3.41x, respectively.   

For the fourth quarter, analysts expect OMF’s EPS growth to slow down to $2.33 compared to the year-ago figure of $2.77. However, its top line should advance 6.30% to $903.62 million in Q4.

Analysts have established a “Strong Buy” rating for OMF, with an average price target of $72.67, which is more than 37% higher than where the stock is currently trading.

Sunlight Financial Holdings Inc. (SUNL)

Based in New York, Sunlight Financial Holdings Inc is a point-of-scale finance company that provides financial services to homeowners for the installation of solar systems, batteries, and roofs. The company went public in July this year through a SPAC merger with Spartan Acquisition Corp. II.

Financial Overview & Analysts Estimates 

For its fiscal second quarter ended June 30th, 2021, SUNL’s revenue increased 162% year-over-year to $26.9 million. The increase in revenue was driven by a record level of loan volume, coming in three-fold higher at $666 million. Besides, the company’s net income grew to a positive figure of $5.2 million compared to a loss of $1.2 million in a year-ago quarter.  

In Q2, the company was able to substantially improve its Adjusted EBITDA margin by about 20x to 42.7%. As a result, SUNL’s Adjusted EBITDA is $11.5 million versus $0.2 million as of 2Q2020. The number of borrowers stood at 18,572, more than double compared to the 2Q2020 figure.

Finally, it is important to note that the company issued a strong full-year outlook. SUNL sees its 2021 total funded loans of $2.6 – $2.8 billion and revenue of $113 – $121 million, which at the midpoint surpass analysts’ consensus estimates of $115.19 million.   

When it comes to the next quarter, the analysts see SUNL’s EPS at $0.06. Also, a $30.26 million average revenue estimate for the third quarter of 2021 indicates further growth on a quarter-over-quarter basis. 

Wall Street analysts have rated SUNL as a “Strong Buy”, with an average price target of $9.00, representing about 45% potential upside.

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Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist. Oleksandr focuses his trade strategy around “special situations” (such as catalysts, potential acquisitions, or spin-offs) and how to make money from those catalysts, as direct stock purchases, combined with option-based approaches for risk minimization.

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