Driven by solid demand for varied financial services and products, the financial sector is well-positioned to witness long-term robust growth. Fintech has further been instrumental in revolutionizing the industry in recent years. It has disrupted traditional business models and created numerous opportunities for companies, both in enterprise and consumer segments.
Given the industry’s bright prospects, fundamentally sound financial stocks FS KKR Capital Corp. (FSK), Regional Management Corp. (RM), and Manhattan Bridge Capital, Inc. (LOAN) could be ideal additions to your portfolio this week.
The financial services sector comprises banking, credit cards, mortgages, insurance, payment services, tax accounting, and investing. Demand for these enterprise and consumer-related finance products is driven by robust consumer spending, business investment activity, and economic growth.
The global financial services market is projected to reach a staggering $37.48 trillion by 2027, growing at a CAGR of 7.5% during the forecast period (2023-2027).
Moreover, the U.S. has one of the largest and most liquid financial markets worldwide. A high demand for cheaper loans supports the industry since the demand for housing and other amenities is growing among consumers. Further, increasing disposable income is enabling consumers to invest more, propelling the market’s growth.
The global consumer finance market is expected to expand at an impressive CAGR of 7.1%, totaling a value of $1.96 trillion by 2029.
Fintech, or financial technology, is reshaping the future of the financial services sector. Financial companies are leveraging digital tools and technologies such as online payments, virtual advisors, cloud, Artificial Intelligence (AI), data analytics, automation, blockchain, the Internet of Things (IoT), and more.
Generative AI in the financial services industry serves several applications like risk management, fraud detection, refining investment strategies, overcoming data limitations, and personalized services. The global generative AI in financial services market is expected to reach $11.22 billion by 2032, registering a CAGR of 28.4%.
Considering these industry trends in mind, top financial stocks FSK, RM, and LOAN could be ideal buys now for potential gains.
Let’s discuss the fundamentals of these stocks in detail:
FS KKR Capital Corp. (FSK)
FSK operates as a business development company specializing in investments in debt securities. The company offers customized credit solutions to private middle-market U.S. companies. The company invests primarily in the senior secured debt and, the subordinated debt of private middle market U.S. companies to a lesser extent.
On November 7, FSK announced a fourth-quarter 2023 distribution of $0.70 per share. The company also declared additional special distributions of $0.10 per share, which will be paid in two equal installments of $0.05 per share during February and May 2024.
FSK pays an annual distribution of $2.56, which translates to a yield of 12.33% at the prevailing share price. Its four-year average dividend yield is 17.29%
FSK’s trailing-12-month gross profit margin and EBIT margin of 100% and 76.09% are 65.6% and 251.4% higher than the respective industry averages of 60.67% and 21.65%. Likewise, the stock’s trailing-12-month net income margin of 36.74% is 45.1% higher than the industry average of 25.31%.
In terms of forward non-GAAP P/E, FSK is trading at 6.60x, 37.3% lower than the industry average of 10.52x. Also, the stock’s forward Price/Book multiple of 0.84 is 29.7% lower than the industry average of 1.19.
For the third quarter that ended on September 30, 2023, FSK’s total investment income increased 13.1% year-over-year to $465 million. The company’s interest income rose 13.7% from the year-ago value to $290 million. Its net investment income was $234 million, up 8.3% year-over-year.
In addition, a net increase in net assets resulting from operations came in at $265 million, or $0.95 per diluted share, compared to a net decrease of $127 million, or $0.45 per share, in the prior year’s quarter, respectively.
Analysts expect FSK’s revenue and EPS for the fiscal year (ended December 2023) to increase 11.9% and 3.5% year-over-year to $1.83 billion and $3.16. Furthermore, the company surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
FSK’s stock has gained 8.2% over the past six months and 16.9% over the past year to close the last trading session at $20.77.
FSK’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 a B grade for Growth and Momentum. Within the Financial Services (Enterprise) industry, FSK is ranked #12 among 102 stocks.
Click here to access additional ratings of FSK (Stability, Quality, Value, and Sentiment).
Regional Management Corp. (RM)
RM is a diversified consumer finance company that provides various installment loan products to customers who have limited access to consumer credit from banks, thrifts, credit card companies, and other lenders. The company offers small and large installment loans and retail loans to finance the purchase of furniture, appliances, and other retail products.
RM pays an annual dividend of $1.20, which translates to a yield of 4.80% at the current share price. Its four-year average dividend yield is 2.18%. Moreover, the company’s dividend payouts have increased at a CAGR of 81.7% over the past three years.
RM’s trailing-12-month return on total assets (ROTA) of 1.47% is 26.7% higher than the 1.16% industry average. Likewise, the stock’s trailing-12-month asset turnover ratio of 0.31x is 50.1% higher than the industry average of 0.21x.
In terms of forward non-GAAP P/E, RM is trading at 8.51x, 19.1% lower than the industry average of 10.52x. And the stock’s forward EV/Sales multiple of 2.98 is 7.9% lower than the industry average of 3.23. Also, its forward Price/Sales of 0.44x is 83.4% lower than the industry average of 2.68x.
For the third quarter that ended September 30, 2023, RM’s total revenue grew 7.2% year-over-year to $140.88 million. Its net income was $8.82 million and $0.91 per common share, respectively. Further, the company’s cash came in at $7.41 million, an increase of 136.1% from the previous year’s period.
Street expects RM’s EPS for the first quarter (ending March 2024) to increase 24.1% year-over-year to $1.12, and its revenue is expected to grow 6.2% year-over-year to $143.84 million. In addition, the company has surpassed the consensus revenue and EPS estimates in all four trailing quarters.
Shares of RM have surged 9.4% over the past month to close the last trading session at $25.
RM’s POWR Ratings reflect its promising prospects. The stock has an overall rating of A, which equates to a Strong buy in our proprietary rating system.
RM has an A grade for Value and a B for Quality, Stability, and Momentum. It is ranked first among 48 stocks in the Consumer Financial Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see RM’s ratings for Growth and Sentiment here.
Manhattan Bridge Capital, Inc. (LOAN)
LOAN is a real estate finance company that originates, services, and manages a portfolio of first mortgage loans. It offers short-term, secured, and non-banking loans to real estate investors to fund their acquisition, renovation, rehabilitation, or development of residential or commercial properties.
LOAN’s revenue and net income have grown at respective CAGRs of 7.3% and 6.5% over the past three years. The company’s normalized net income has increased at a 6.4% CAGR over the same timeframe, while its total assets have improved at a CAGR of 7.2%.
LOAN’s trailing-12-month gross profit and net income margin of 100% and 76.14% are significantly higher than the respective industry averages of 60.67% and 25.31%. Also, the stock’s trailing-12-month ROTA of 7.33% is 532.3% higher than the industry average of 1.16%.
For the third quarter that ended September 30, 2023, LOAN’s total revenues increased 15.5% year-over-year to $2.43 million. Its interest income from loans came in at $1.99 million, up 18.8% from the prior year’s quarter. The company’s net income was $1.45 million and $0.13 per common share, up 16.9% and 18.2% year-over-year, respectively.
Analysts expect LOAN’s EPS for the fourth quarter (ended December 2023) to increase 20% year-over-year to $0.12. For the fiscal year 2023, its EPS is expected to grow 6.7% year-over-year to $0.48. Further, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
Over the past month, the stock has gained 5.4% and 1.2% over the past six months to close the last trading session at $4.87.
LOAN’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, translating to a Strong Buy in our proprietary rating system.
LOAN has a B grade for Quality, Stability, and Sentiment. It has topped the list of 102 stocks within the Financial Services (Enterprise) industry.
To see the other ratings of LOAN for Value, Growth, and Momentum, click here.
What To Do Next?
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FSK shares rose $0.07 (+0.34%) in premarket trading Wednesday. Year-to-date, FSK has gained 4.36%, versus a -0.26% 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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