The financial sector suffered a major setback amid the COVID-19 pandemic last year thanks to the Federal Reserve’s decision to keep benchmark interest rates near zero to help buoy the economy and lower financial transactions amid the recession. However, with the economy now reopening quickly, the sector is attracting a lot of investor attention given its recovery potential. This is evidenced by the Financial Select Sector SPDR ETF’s (XLF) 29.3% gains year-to-date compared to the SPDR S&P 500 Trust ETF’s (SPY) 13% returns.
During an interview with Bloomberg News this month, U.S. Treasury Secretary Janet Yellen signaled that a slightly higher interest rate environment would be a plus for the economy. Such a development is expected to be a boon for the financial sector. Furthermore, the industry is expected to grow in the coming months with the integration of more advanced technologies in financial transactions. According to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to hit $22.5 trillion in 2021.
Given this backdrop, we think it could be wise to bet on Capital One Financial Corporation (COF), Synchrony Financial (SYF), and OneMain Holdings, Inc. (OMF). The shares of these companies have been hitting new price highs recently. And, based on their fundamental strength, we think their shares could ascend higher in the coming months.
Capital One Financial Corporation (COF)
COF is a diversified financial services holding company that offers a range of financial products and services to consumers, small businesses and commercial clients through branches, internet and other distribution channels. It operates through three segments: credit card; consumer banking; and commercial banking and other.
The company paid a $0.40 per share quarterly dividend on May 28, 2021. COF also paid a $10.20 quarterly dividend on June 1, 2021, on the outstanding shares of its fixed-to-floating rate non-cumulative perpetual preferred stock, Series E, among others. The dividend payments are an indication of COF’s financial strength.
COF’s income from continuing operations increased 37% sequentially to $4.20 billion for the first quarter, ended March 31, 2021. Its net income grew 30% sequentially to $3.32 billion, while its total assets increased 8% year-over-year to $421.81 billion. Also, its EPS came in at $7.03, up 31% year-over-year.
For the current quarter, ending June 30, 2021, analysts expect COF’s EPS to be $4.30, which represents a 294.6% year-over-year increase. It surpassed the consensus EPS estimates in three of the trailing four quarters. Its annual revenue is expected to rise 5.3% in its fiscal year 2022 to $30.46 billion.
COF’s stock has gained 131.3% over the past nine months to close yesterday’s trading session at $162.73. It is currently trading just 3.1% below its 52-week high of $168, which it hit on June 4, 2021.
COF’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has a B grade for Growth, Sentiment and Momentum. Within the B-rated Consumer Financial Services industry, COF is ranked #6 of 50 stocks.
To see all POWR Ratings for COF (Stability, Value and Quality), click here.
Synchrony Financial (SYF)
SYF is a consumer financial services company in the United States. It provides a range of specialized financing programs and consumer banking products to auto, retail, home and other industries. The company also offers private label credit cards, dual cards, general purpose co-branded credit cards, and small- and medium-sized business credit products.
On May 24, 2021, SYF and CITGO Petroleum Corporation announced a multi-year extension of their strategic partnership, highlighting SYF’s commitment to offer CITGO customers enhanced purchasing options and more benefits. Curtis Howse, SYF’s payment solutions segment CEO said, “Our partnership with CITGO has continued to grow through a dynamic environment. We constantly strive to improve customer experience, build functionality, and collaborate with our partners to build brand loyalty.”
SYF’s provision for credit losses decreased 80.1% year-over-year to $334 million for fiscal first quarter, ended March 31, 2021. Its earnings before income taxes grew 244.2% year-over-year to $1.31 billion. SYF’s net earnings were $1.02 billion, which represents a 258.4% year-over-year increase. The company’s EPS was $1.73, up 284.4% year-over-year.
Analysts expect SYF’s EPS to come in at $1.37 for the current quarter ending June 30, 2021, which represents a 2,183.3% year-over-year increase. The company’s annual revenue is expected to increase 7% in 2022 to $15.34 billion.
The stock has gained nearly 99% over the past nine months to close yesterday’s trading session at $50.80, after hitting its 52-week high of $50.96. SYF is currently trading just 0.3% below its 52-week high.
SYF’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It also has a B grade for Momentum and Quality.
Click here to see the additional POWR Ratings for SYF (Stability, Growth, Value and Sentiment).
SYF is ranked #5 in the Consumer Financial Services industry.
OneMain Holdings, Inc. (OMF)
Financial services holding company OMF operates in the consumer finance and insurance businesses. It has a network of roughly 1,500 branch offices in 44 states across the United States and a website—onemainfinancial.com. Its segments include consumer and insurance; acquisitions and servicing; real estate, and other.
In April, OMF announced that it had entered an agreement to acquire Trim, which is a customer-focused financial wellness fintech. The acquisition is expected to help OMF expand its product and services portfolio.
The company’s net interest income increased 158.4% year-over-year to $827 million for the first quarter, ended March 31, 2021. Its income before taxes grew 1,169.8% year-over-year to $546 million, while its net income increased 1,190.6% year-over-year to $413 million. Also, its EPS came in at $3.06, up 1,175% year-over-year.
For the current quarter, ending June 30, 2021, analysts expect OMF’s EPS and revenue to increase 158.7% and 9.2%, respectively, year-over-year to $2.07 and $856.38 million. It surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained nearly 90% over the past year to close yesterday’s trading session at $59.94, after hitting its 52-week high of $60.28.
It’s no surprise that OMF has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Momentum, Sentiment, Value and Quality.
COF shares were trading at $160.51 per share on Wednesday morning, down $2.22 (-1.36%). Year-to-date, COF has gained 63.35%, versus a 13.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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