On Thursday, Compass Point adjusted the price target for OneMain Holdings (NYSE:OMF), raising it to $63 from the previous $60, while maintaining a Buy rating on the stock. OneMain reported its adjusted earnings per share (EPS) for the third quarter of 2024 at $1.26, surpassing the consensus estimate of $1.14.
The performance exceeded expectations due to an approximate 15 basis points quarter-over-quarter improvement in asset yield contrary to flat projections, coupled with robust origination volumes that reached $3.7 billion.
For the third quarter of 2024, OneMain's net charge-offs (NCOs) were reported at 7.33%, and the company experienced favorable delinquency trends, with commercial and industrial (C&I) 30-89 day delinquencies decreasing by 27 basis points to 3.01%. This improvement was noted as better than typical seasonal patterns.
Management's outlook was also optimistic, indicating a belief that peak NCOs were observed in the first half of 2024 and projecting an improvement in NCO trends going into 2025, which is anticipated to enhance capital generation.
The financial firm's third-quarter performance has been seen as a positive sign, indicating a potential turning point that could lead to a substantial boost in capital generation for the fiscal year 2025 and beyond. This improvement is expected to support the share price. The new price target of $63 is based on a 7.0 times multiple of the projected adjusted EPS of $9.06 for the fiscal year 2026.
OneMain's prospects are further bolstered by an attractive dividend yield of approximately 8%, which is projected to be increasingly well-covered. This coverage is expected to facilitate the realization of significant growth capital and the ability to reduce debt in the fiscal years 2025 and 2026.
The company's shares are considered to offer a compelling total return at current levels and are expected to continue their outperformance.
InvestingPro Insights
Recent data from InvestingPro adds depth to the positive outlook for OneMain Holdings (NYSE:OMF). The company's market capitalization stands at $5.97 billion, with a P/E ratio of 10.93, indicating that the stock may be undervalued relative to its earnings. This aligns with Compass Point's bullish stance and increased price target.
OneMain's financial health appears robust, with a revenue of $2.51 billion in the last twelve months as of Q2 2024. The company boasts an impressive gross profit margin of 92.24% and an operating income margin of 30.92%, demonstrating strong operational efficiency. These figures support management's optimistic outlook on improving capital generation.
InvestingPro Tips highlight that OneMain pays a significant dividend to shareholders, which is corroborated by the current dividend yield of 8.01%. This aligns perfectly with the article's mention of an attractive dividend yield of approximately 8%. Additionally, the company has shown a high return over the last year, with a one-year price total return of 58.24%, reinforcing the article's projection of continued outperformance.
It's worth noting that InvestingPro offers 7 additional tips for OneMain Holdings, providing investors with a more comprehensive analysis. These insights can be particularly valuable given the company's recent performance and future prospects as outlined in the article.
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