Wedbush Upgrades OneMain On Q2 EPS Beat, Decline In NCO Ratio

OneMain Holdings Inc OMF reported its second-quarter EPS handsomely ahead of expectations, along with a decline in its net charge-off ratio ratio.

OneMain Holdings should be able to manage the CECL (Current Expected Credit Losses) complexities and the $2 per share special declared at the earnings release is a clear sign of the company’s excess capital generation, according to Wedbush.

The Analyst

Wedbush’s Henry Coffey upgraded OneMain Holdings from Neutral to Outperform, while raising the price target from $35 to $45.

The Thesis

OneMain reported quarterly GAAP EPS at $1.42, significantly above Wedbush’s estimate of $1.39 and consensus of $1.34. The results were driven by higher-than-expected loan growth and slightly lower provision and operating costs, Coffey said in the note.

Originations grew 21% to $3.9 billion in the quarter, with the share of secured loans increasing to 50% of volume, from 44% in the same quarter last year. Loan yields came in at 24.2%, representing an improvement both sequentially and on a year-on-year basis, Coffey noted.

He highlighted the decline in the company's net charge-off ratio as an important development in the quarter. The NCO ratio declined from 6.6% of average loans in the year-ago period to 6.2%, along with lower delinquencies.

Price Action

Shares of OneMain Holdings traded higher by more than 12% to $40.40 on Tuesday morning.