On Tuesday, BTIG, a well-known financial services firm, increased its price target on shares of Atlanticus Holdings Corp. (NASDAQ:ATLC) to $54, up from the previous $45, while maintaining a 'Buy' rating on the stock. This adjustment reflects the company's strong performance metrics, which have shown consistent improvement both quarterly and yearly.
Atlanticus has demonstrated robust growth, with purchase volume and loan growth seeing significant increases. Year-over-year, purchase volume rose by 16% and loan growth by 12%, with even greater gains observed on a quarterly basis. This growth comes despite a competitive market, where Atlanticus outperformed many prime credit card peers.
The company has also seen a notable decrease in principal net charge-offs (NCOs) and delinquencies. NCOs dropped by 30 basis points year-over-year and a substantial 380 basis points quarter-over-quarter. Delinquencies followed a similar trend, with a 160 basis point reduction year-over-year and a 60 basis point decline quarter-over-quarter.
Atlanticus's net interest margin (NIM) did experience some compression quarter-over-quarter but showed an expansion when compared to the same quarter last year. The firm attributes this to Atlanticus's increased market share in the prime/near-prime space.
BTIG remains optimistic about Atlanticus's loan growth potential, which has continued to surge without the impact of their partnership with Synchrony, which only began in October 2024.
The company's growth in the most recent quarter was driven by deeper penetration into Atlanticus's existing large merchant relationships. This trend is expected to amplify during the holiday sales season of the fourth quarter of 2024. The partnership with Synchrony is projected to start contributing to growth by the second quarter of 2025 as Atlanticus integrates the merchant pipeline from Synchrony.
Additionally, Atlanticus has benefited from what is referred to as the "Trump Trade," an environment of reduced regulation, which has seen its shares climb by 24% over the past month. Atlanticus is also making progress with its Change in Terms to clients, with little resistance from consumers and merchants.
Despite questions about the sustainability of earnings from point of sale credit cards, BTIG believes that Atlanticus, among others, can successfully adjust to new economic baselines, especially in light of rising inflation and other costs. The discussions with merchants, spurred by the Consumer Financial Protection Bureau (CFPB), are comprehensive and are expected to go beyond the impact of the late fee rule changes.
In other recent news, Atlanticus Holdings Corp. has been under the positive gaze of B.Riley, which maintains a Buy rating on the company's shares. The firm's analysts anticipate a potential upside of over 50% for Atlanticus shares within the next 12 months, fueled by expected credit improvement, margin expansion, and sustained double-digit portfolio growth.
This growth is projected to contribute to mid-teen earnings growth by 2026. B.Riley's optimism also hinges on the company's counter-cyclical business model and data-driven underwriting approach, seen as key in managing credit risk and optimizing returns.
Despite a slowdown in the specialty finance sector, Atlanticus is expected to achieve a mid-20%-ROE by 2026, according to B.Riley. The company's earnings forecasts for fiscal years 2024, 2025, and 2026 have been adjusted to $4.50, $6.15, and $7.40 per share, respectively, due to accounting volatility.
However, Atlanticus could surpass earnings of $7 per share once accounting inconsistencies are resolved and the high-cost Class B preferred stock is refinanced.
On the corporate front, Atlanticus recently priced a public add-on offering of $55 million in senior notes, following a previous issuance of $57.25 million in senior notes. The funds are earmarked for redeeming part of the Class B preferred units of a subsidiary or for general corporate purposes.
In terms of earnings, the company's Q1 2024 earnings met expectations with a net income of $19.9 million. Atlanticus has implemented additional fees and new product features, projected to offset the effects of new late fee rules by mid-2025.
InvestingPro Insights
Recent data from InvestingPro reinforces BTIG's bullish stance on Atlanticus Holdings Corp. (NASDAQ:ATLC). The company's stock has shown remarkable momentum, with a 24.14% price return over the past month and an impressive 41.57% return over the last three months. This aligns with BTIG's increased price target and reflects the strong performance metrics highlighted in their analysis.
Atlanticus's financial health appears robust, with a P/E ratio of 7.89, significantly lower than many in the financial sector. This suggests the stock may be undervalued relative to its earnings potential. Additionally, the company's revenue growth of 8.5% over the last twelve months and a strong operating income margin of 34.15% underscore its operational efficiency and growth trajectory.
InvestingPro Tips indicate that Atlanticus is trading near its 52-week high and has shown significant returns over various time frames, corroborating BTIG's positive outlook. The stock's volatility, as noted by InvestingPro, could present opportunities for investors aligned with BTIG's higher price target.
For investors seeking a deeper understanding of Atlanticus's potential, InvestingPro offers 13 additional tips, providing a comprehensive view of the company's financial position and market performance.
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