Fostered by the increasing wealth of HNI individuals, several investment alternatives, more accessible loan and credit facilities, and the emergence of cutting-edge digital technologies, the financial services industry is poised to witness long-term robust growth and expansion.
Given the industry’s bright prospects, fundamentally sound consumer finance stocks H&R Block, Inc. (HRB), Yiren Digital Ltd. (YRD), and Regional Management Corp. (RM) could be solid additions to your portfolio now.
The financial services industry plays a vital role in shaping an economy. Services provided by financial institutions facilitate several financial transactions and activities like loans, insurance, credit cards, investment opportunities, tax accounting, and money management. The financial services market is projected to total $33.54 trillion in 2024.
Further, the financial services market is anticipated to reach $44.92 trillion by 2028, growing at a CAGR of 7.6%. The growth in the forecast period could be attributed to the accelerating wealth of high-net-worth (HNI) individuals, rising demand for alternative investments, and increasing home ownership and mortgages.
The global consumer finance market size is projected to grow at a CAGR of 7.1%, attaining a market value of $1.96 trillion by 2029. Increasing access to different types of loans and credits through digital payment platforms is creating lucrative growth opportunities for the market players.
Technological breakthroughs such as Artificial Intelligence (AI), blockchain, cloud computing, the Internet of Things (IoT), mobile banking, and big data are shaping the competitive landscape of the financial industry. Digital transformation of financial services enhances effectiveness, security, and customer experience.
Generative AI in financial services involves a variety of applications, including improving risk management, fraud detection, personalized services, refining investment strategies, and overcoming data limitations. The global generative AI in financial services market size is expected to reach $11.22 billion by 2032, expanding at a CAGR of 28.4%.
Considering these industry trends, fundamentally strong consumer finance stocks HRB, YRD, and RM could be ideal buys now for potential gains.
Let’s discuss the fundamentals of these stocks in detail:
H&R Block, Inc. (HRB)
HRB provides assisted income tax return preparation and do-it-yourself (DIY) tax return preparation services and products to the general public in the U.S., Canada, and Australia. The company offers its services through a system of retail offices operated by the company or its franchisees. It also provides Refund Transfers and H&R Block Emerald Prepaid Mastercard.
On January 16, 2024, HRB announced the launch of the Beneficial Ownership Information Reporting service by Block Advisors. This service will help the more than 32 million business owners impacted by the recently enacted Beneficial Ownership Information reporting rules by the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
So, with the help of this new service, small business owners can comply with the Corporate Transparency Act and avoid hefty penalties.
On December 14, 2023, HRB introduced H&R Block AI Tax Assist, a generative AI experience created to streamline the tax preparation process for individuals and self-employed and small business owners to file and manage their taxes confidently.
The technology combines the expertise of H&R Block and its tax professionals and the power and efficiency of AI to offer real-time, reliable tax filing assistance, providing 100% accuracy and maximum refund guarantees.
On November 2, HRB’s Board of Directors declared a quarterly cash dividend of $0.32 per share, paid on January 4, 2024, to shareholders of record as of December 5, 2023. H&R Block paid quarterly dividends consecutively since it became public in 1962. Since April 2016, the company has grown its dividend by more than 60%.
HRB pays an annual dividend of $1.28, which translates to a yield of 2.68% at the current share price. Its four-year average dividend yield is 4.34%. Moreover, the company’s dividend payouts have increased at a CAGR of 5.5% over the past three years. HRB has raised its dividends for eight consecutive years.
For the fiscal 2024 first quarter that ended September 30, 2023, HRB’s revenues increased 2.1% year-over-year to $183.80 million. The company’s services revenue rose 2.7% from the year-ago value to $171.73 million. In addition, the company’s total liabilities reduced from $3.04 billion as of June 30, 2023, to $2.85 billion as of September 30, 2023.
The company reaffirmed the fiscal year 2024 outlook, where it expects its revenue to be in the range of $3.530 billion to $3.585 billion. Further, HRB’s EBITDA is expected to be in the range of $930 to $965 million, and adjusted earnings per share are expected to be between $4.10 and $4.30.
Analysts expect HRB’s revenue and EPS for the third quarter (ending March 2024) to increase 2.7% and 14.7% year-over-year to $2.15 billion and $4.82, respectively. Moreover, the company surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
HRB’s stock has gained 43% over the past six months and 23.8% over the past year to close the last trading session at $47.74.
HRB’s solid outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Quality and a B for Value. Within the B-rated Consumer Finance Services industry, HRB is ranked #14 among 45 stocks.
Click here to access additional ratings of HRB (Stability, Growth, Momentum, and Sentiment.
Yiren Digital Ltd. (YRD)
Based in Beijing, China, YRD operates an AI-powered platform that offers a suite of financial and lifestyle services. It delivers insurance solutions to individuals, families, and businesses to augment their overall well-being and security. The company also offers premium lifestyle services and digital financial services, supporting clients at various stages.
YRD’s trailing-12-month gross profit margin and net income margin of 78.70% and 42.34% are 31.5% and 80.6% higher than the respective industry averages of 59.85% and 23.45%. Further, the stock’s trailing-12-month ROTA of 21.33% is significantly higher than the industry average of 1.09%.
YRD’s EBITDA and EBIT have grown at respective CAGRs of 74.4% and 89.1% over the past three years. The company’s net income has increased at a 94.5% CAGR over the same timeframe, while its EPS has improved at a CAGR of 96.6%.
For the third quarter that ended September 30, 2023, YRD’s net revenue increased 55.9% year-over-year to $179.66 million. Total loans facilitated in the quarter reached $1.30 billion, up 55.6% from the prior year’s quarter. The company’s net income was $75.99 million and $0.43 per share, up 105.1% and 108.7% year-over-year, respectively.
In addition, the company’s adjusted EBITDA came in at $94.94 million, an increase of 89.8% from the previous year’s period. Cash inflows from operating activities grew 88.2% year-over-year to $88.50 million.
Over the past month, the stock has gained 53.9% and 93.1% over the past six months to close the last trading session at $4.77.
YRD’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, equating to a Strong Buy in our proprietary rating system.
YRD has an A grade for Value and Quality and a B for Sentiment. The stock has topped the list of 9 stocks within the Foreign Consumer Finance industry.
To see the other ratings of YRD for Growth, Stability, and Momentum, click here.
Regional Management Corp. (RM)
RM is a diversified consumer finance company offering various installment loan products to customers who have limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. The company provides small and large installment loans and retail loans to finance the purchase of furniture, appliances, and other retail products.
On December 13, 2023, RM paid a quarterly dividend of $0.30 per common share to shareholders of record as of the close of business on November 22, 2023. RM’s annual dividend of $1.20 translates to a yield of 4.53% at the current share price. Its four-year average dividend yield is 2.23%.
Moreover, the company’s dividend payouts have increased at a CAGR of 81.7% over the past three years.
On June 27, YRD entered an equity transfer agreement to acquire 100% equity interest in Chongqing Jintong Financing Guarantee Co., Ltd., a licensed financing guarantee company based in China, for a total cash consideration of RMB 204.90 million ($28.85 million).
Post-acquisition, YRD will be able to provide financing guarantee services through Chongqing Jintong, thereby expanding its loan facilitation business in China, optimizing its service offerings and accelerating the pace of its business development.
In terms of forward non-GAAP P/E, RM is trading at 9.22x, 15.9% lower than the industry average of 10.96x. Likewise, the stock’s forward Price/Sales multiple of 0.47 is 82.2% lower than the industry average of 2.65. Also, its forward Price/Book of 0.78x is 30% lower than the industry average of 1.11x.
Over the past three years, RM’s revenue and EBITDA have grown at CAGRs of 13.1% and 6%, respectively. The company’s EBIT has increased 6% over the same period, while its tangible book value and total assets have improved at respective CAGRs of 6.2% and 19.4%.
During the third quarter that ended September 30, 2023, RM’s total revenue increased 7.2% year-over-year to $140.88 million. Its net income came in at $8.82 million, or $0.91 per common share, respectively. Further, the company’s cash of $7.41 million indicates an increase of 136.1% from the previous year’s period.
Street expects RM’s revenue and EPS for the first quarter (ending March 2024) to increase 6.2% and 24.1% year-over-year to $143.84 million and $1.12, respectively. In addition, the company has surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.
Shares of RM have surged 14.5% over the past three months to close the last trading session at $26.50.
RM’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
RM has an A grade for Value and a B for Quality and Stability. It is ranked first among 45 stocks in the B-rated Consumer Financial Services industry.
In addition to the POWR Ratings highlighted above, you can check RM’s ratings for Growth, Momentum, and Sentiment here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
HRB shares were unchanged in premarket trading Monday. Year-to-date, HRB has declined -1.30%, versus a 2.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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