The Fed is expected to continue its tightened monetary policy as it considers the impact of previous rate hikes on the economy and financial developments.
Therefore, investors could benefit from fundamentally strong and profitable financial stocks OneMain Holdings, Inc. (OMF) and EZCORP, Inc. (EZPW). However, it could be wise to add Capital One Financial Corporation (COF) to their watchlists.
Financial services are products and services provided by financial institutions that facilitate various monetary transactions and other financial activities like loans, insurance, credit cards, investment opportunities, and money management. Financial service providers have benefitted from digital transformation as it has helped them simplify monetary transactions.
The Federal Reserve recently raised the target range for its benchmark interest rate by 0.25%, bringing it to a new range of 5.25%-5.50%. It was a unanimous decision and left the door open for more rate hikes this year.
Even as inflation cools, it remains well above the Fed’s long-term target of 2%. Financial companies will benefit from the rising interest rates as it helps them expand their revenues.
The financial services market is expected to grow to $37.48 trillion in 2027 at a CAGR of 7.5%.
Given these factors, investors could look out for the featured financial stocks. Let’s take a closer look at their fundamentals.
Stocks to Buy:
OneMain Holdings, Inc. (OMF)
OMF is a financial service holding company engaged in the consumer finance and insurance businesses. The company originates, underwrites, and services personal loans secured by automobiles, other titled collateral, or unsecured. It also offers credit cards and insurance products.
In terms of the trailing-12-month Return on Total Assets, OMF’s 3.36% is 201.9% higher than the 1.11% industry average. Likewise, its 24.44% trailing-12-month Return on Common Equity is 117.9% higher than the industry average of 11.22%. And in terms of the trailing-12-month gross profit margin, OMF’s 94.15% is 59.8% higher than the industry average of 58.91%.
For the fiscal first quarter that ended March 31, 2023, OMF’s total assets increased 2.9% year-over-year to $22.44 billion. The company’s total other revenues increased 9.3% year-over-year to $177 million. Additionally, its net income came in at $179 million, while its EPS came in at $1.48.
Analysts expect OMF’s EPS and revenue for the quarter ending September 30, 2023, to increase 10.4% and 2.1% year-over-year to $1.67 and $1.09 billion, respectively. Over the past nine months, the stock has gained 38.3% to close the last trading session at $45.02
OMF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #4 of 47 stocks in the B-rated Consumer Financial Services industry. In addition, it has a B grade for Growth and Quality.
We have also given OMF grades for Value, Momentum, Stability, and Sentiment. Get all OMF ratings here.
EZCORP, Inc. (EZPW)
EZPW provides pawn services in the United States and Latin America. The company operates through three segments: U.S. Pawn, Latin America Pawn, and Other Investments.
It offers pawn loans collateralized by tangible personal property, jewelry, consumer electronics, tools, sporting goods, and musical instruments. In addition, it offers EZ+, a web-based application that allow customers to manage their pawn transactions, layaways, and loyalty rewards online
In terms of the trailing-12-month Return on Total Assets, EZPW’s 2.08% is 86.8% higher than the 1.11% industry average. Its 4.10% trailing-12-month CAPEX/Sales ratio is 112.8% higher than the industry average of 1.93%. Also, its 0.71x trailing-12-month asset turnover ratio is 251.6% higher than the 0.20x industry average.
EZPW’s adjusted total revenue for the fiscal first quarter ended March 31, 2023, increased 18.4% year-over-year to $261.60 million. Its adjusted gross profit increased 14.4% year-over-year to $151.10 million. Moreover, its adjusted EPS increased 27.3% year-over-year to $0.28
Street expects EZPW’s EPS and revenue estimates for the quarter ending September 30, 2023, to increase 26.7% and 10.5% year-over-year to $0.19 and $257.84 million, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters.
Over the past year, EZPW has gained 24.5% to close the last trading session at $9.24.
EZPW’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. It is ranked #2 in the same industry. Moreover, it has a B grade for Value. To access the other ratings of EZPW for Growth, Momentum, Stability, Sentiment, and Quality, click here.
Stock to Watch:
Capital One Financial Corporation (COF)
COF operates as the financial services holding company for the Capital One Bank (USA), National Association; and Capital One, National Association, which provides various financial products and services in the United States, Canada, and the United Kingdom. It operates through three segments: Credit Card; Consumer Banking; and Commercial Banking.
In terms of trailing-12-month net income margin, COF’s 20.15% is 21.9% lower than the industry average of 25.81%. Its 10.21% trailing-12-month Return on Common Equity is 9.0% lower than the industry average of 11.22%, while its 3.56% trailing-12-month CAPEX/Sales is 84.7% higher than the 1.93% industry average.
COF’s total net revenue for the fiscal first quarter ended March 31, 2023, increased 8.9% year-over-year to $8.90 billion. The company’s adjusted net income available to common stockholders declined 61.7% year-over-year to $887 million. Its adjusted EPS came in at $2.31.
COF’s EPS for the quarter ending September 30, 2023, is expected to decline 20.8% year-over-year to $3.33, and its revenue is expected to increase 4.2% to $9.18 billion. Over the past three months, the stock has gained 20.8% to close the last trading session at $114.04
COF has an overall POWR Rating of C, which equates to a Neutral in our proprietary rating system. It is ranked #24 in the Consumer Financial Services industry. It has a B grade for Value. Click here to see additional ratings of COF for Growth, Momentum, Stability, Sentiment, and Quality.
What To Do Next?
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OMF shares were trading at $46.76 per share on Thursday morning, up $1.74 (+3.86%). Year-to-date, OMF has gained 47.56%, versus a 20.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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