James Fotheringham, an analyst from BMO Capital, has initiated a new Hold rating on Enova International (ENVA).
James Fotheringham has given his Hold rating due to a combination of factors surrounding Enova International’s market position and financial outlook. His analysis indicates a modest potential upside of 4% for ENVA’s stock, with a target price based on a 1.5x two-year-forward price to tangible common equity (P/TCE) valuation multiple. This valuation is derived from an anticipated return on tangible common equity (RoTCE) of 24.2% and reflects ENVA’s historical price-to-earnings (P/E) average. Fotheringham acknowledges the company’s significant business shift following the acquisition of OnDeck, which has diversified Enova’s loan portfolio from predominantly consumer loans to a more balanced mix that includes a growing proportion of small business loans.
The report also discusses the potential improvement of credit quality in subprime installment loans by 2024, projecting a decrease in net loss rates. However, it cautions about the sensitivity of ENVA’s earnings to the fair value mark on its loan portfolio. This sensitivity is particularly concerning in light of forecasts for slower growth and rising unemployment, which could lead to credit deterioration, especially in the small business sector. Additionally, while ENVA is expanding its market share in small business (SMB) lending and tightening consumer lending underwriting standards, the analyst remains cautious due to the uncertain economic environment that could negatively affect loan quality and earnings.
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Enova International (ENVA) Company Description:
Enova International, Inc. engages in the provision of online financial services. Its products and services include short-term consumer loan, line of credit accounts, instalment loans, receivables purchase agreements, credit services organization (CSO) program, bank program, and decision management platform-as-a-service and analytics-as-a-service. It caters non-prime credit consumers and small businesses in the United States and Brazil. The company was founded by Albert Goldstein and Alexander Goldstein in 2003 and is headquartered in Chicago, IL.
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