The hotter-than-expected inflation numbers released last week have shown that the aggressive interest rate hikes enacted by the Fed are yet to be effective. The Consumer Price Index (CPI) increased 0.4% sequentially in September, beating the Dow Jones estimate of 0.3%. On a 12-month basis, inflation rose 8.2%.
Even after excluding the food and energy prices, already inflated by supply shortages due to geopolitical and macroeconomic uncertainties, the core inflation rose 6.6% year-over-year in September, the biggest 12-month increase since August 1982.
This seems to have paved the way for the Fed to respond with another 75-bps rate hike next month, further making debt more expensive for businesses. While an increasing rate environment affects most sectors, it has benefits financial companies as they generate more interest income.
Since the interest rates are expected to increase further, investing in fundamentally strong and growing financial stock Group Holdings Corp. (CURO) could be wise. However, PayPal Holdings, Inc. (PYPL) could be best avoided now as it is not well positioned to capitalize on the rising interest rate environment.
Stock to Buy:
CURO Group Holdings Corp. (CURO)
CURO is a consumer finance company that leverages its technology to serve non-prime customers in Canada. The company operates through Canada Direct Lending and Canada POS Lending segments.
On October 4, 2022, Flexiti Financial Inc., a leading point-of-sale consumer financing solution for retailers and a subsidiary of CURO, announced today that it has upsized its revolving warehouse credit facility from C$500 million ($360.18 million) to C$535 million ($385.39 million) and extended its maturity.
According to Peter Kalen, founder and CEO of Flexiti, this renewed warehouse facility would broaden banking relationships and lower the cost of funds while demonstrating investors’ confidence in Flexiti’s business model and growth opportunities.
For the second quarter of the fiscal year 2022 ended June 30, CURO’s net revenue increased 22.7% year-over-year to $174.86 million. The company’s total assets stood at $2.68 billion as of June 30, 2022, compared to $2.46 billion as of December 31, 2021.
Analysts expect CURO’s revenue for the fourth quarter of the fiscal year 2022 (ending December 31) to increase 7.7% year-over-year to $241.69 million. Also, the company’s revenue for the current year is expected to rise 29.5% year-over-year to $1.06 billion.
Furthermore, analysts expect the company’s revenue and EPS for the next year to grow 6% and 938% from the previous year to $1.12 billion and $2.05, respectively.
CURO’s stock has declined 30.6% over the past month to close the last trading session at $4.06.
CURO has an overall POWR Rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CURO also has a grade B for Growth. It is ranked #6 among 49 stocks in the Consumer Financial Services industry.
For additional ratings on Value, Stability, Sentiment, Quality, and Momentum for CURO, please click here.
Stock to Avoid:
PayPal Holdings, Inc. (PYPL)
PYPL enables digital payments and commerce experiences for merchants worldwide as a technology platform. Its brands include PayPal, Braintree, Venmo, Xoom, Zettle, Hyperwallet, Honey, Happy Returns by PayPal, Chargehound, Paidy, and Simility.
On October 11, 2022, PYPL announced the launch of the PayPal Zettle Terminal, its All-In-One POS Solution for small businesses in the U.S. However, given the bleak near-term outlook for the U.S. and the global economy affecting small businesses more severely, this launch is unlikely to have any material and positive impact on business performance in the foreseeable future.
In the fiscal 2022 second quarter ended June 30, 2022, PYPL’s non-GAAP operating income declined 21.3% year-over-year to $1.3 billion. The company’s non-GAAP net income also declined 20.8% from the prior-year value to $1.08 billion during the same period. It translated to $0.93 per share on an adjusted basis, down 19.1% year-over-year.
Analysts expect PYPL’s EPS for the third quarter of fiscal 2022 (ending September 2022) to decrease 13.1% year-over-year to $0.96. Also, the company’s EPS for the fiscal year 2022 is expected to decline 14.6% year-over-year to $3.93.
The stock has slumped 16.6% over the past month and 58.7% year-to-date to close the last trading session at $80.47.
PYPL’s POWR Ratings are consistent with its weak performance and bleak outlook. It has an overall D rating, equating to a Sell in our proprietary rating system. It also has a grade of D for Momentum. PYPL is ranked #39 among 49 stocks in the same industry.
In addition to the above, we have also rated PYPL on other parameters, such as Growth, Value, Stability, Sentiment, and Quality. Click here to see all ratings for PYPL.
PYPL shares rose $0.09 (+0.11%) in after-hours trading Monday. Year-to-date, PYPL has declined -55.11%, versus a -21.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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