After showing significant resilience over the last two years, the financial services industry is poised for solid growth and expansion in the long term, driven by sustained demand for financial services globally and rapid digital transformation in the space. Additionally, the high-interest rate environment should bode well for financial services companies as it drives their profit margins.
Considering the industry’s promising outlook, it seems wise to invest in fundamentally sound financial services stocks Everi Holdings Inc. (EVRI), Medallion Financial Corp. (MFIN), and Manhattan Bridge Capital, Inc. (LOAN) for potential gains.
Over the past two years, the financial services industry has demonstrated its ability to navigate unprecedented levels of uncertainty. Financial services organizations, from insurance to investment management to banking and capital markets, have shown remarkable resilience and are poised to witness significant growth this year and beyond, driven by sustained demand for financial services.
The COVID-19 pandemic, with restrictions on physical banking and insurance services, accelerated the adoption of digital tools, and financial services companies responded by ramping up their digital transformation efforts to revitalize digital channels.
Financial services organizations are integrating digital systems along with advanced infrastructure and several platforms to improve customer services, streamline operations, and foster innovation. Financial institutions leverage advanced analytics and data-driven insights to make informed decisions, identify market trends, develop personalized offerings, and manage risks effectively.
By adopting emerging technologies, including artificial intelligence (AI), machine learning (ML), robotic process automation (RPA), and business intelligence tools, the financial services industry provides new convenience to users, such as digital account opening, peer-to-peer payments, and digital loans.
Cloud computing is also becoming increasingly essential for institutions looking to remain completive in a digital-first world. As per Mordor Intelligence, the financial services application market is projected to grow at a CAGR of 7.9% by 2027.
According to a report by The Business Research Company, the global financial services market is expected to grow to $37.48 trillion by 2027 at a CAGR of 7.5%.
Moreover, financial institutions significantly benefit from higher interest rates. This month, the Federal Reserve approved another interest rate hike, taking benchmark borrowing costs to their highest level in more than 22 years. The 25-basis-point rate hike would bring the fed funds rate to a target range of 5.25%-5.5%.
The consumer price index (CPI) grew just 0.2% in June and was up 3% year-over-year, the lowest level since March 2021. Although inflation has declined for 12 consecutive months, it is still elevated for the Fed, which is looking to wrestle increases down to nearly 2%. Furthermore, Fed Chair Jerome Powell leaves the door open to another hike in September.
Against this backdrop, investing in quality financial services stocks EVRI, MFIN, and LOAN could be wise now for solid returns.
Let’s take a closer look at the fundamentals of these stocks:
Everi Holdings Inc. (EVRI)
EVRI engages in the provision of entertainment and technology solutions to the casino, interactive, and gaming industries. It develops and supplies entertaining game content, gaming machines, and gaming systems for land-based and iGaming operators internationally. The company operates through two segments: Games and Financial Technology Solutions.
On May 31, EVRI launched the Muscogee Creek Mobile App at all nine Muscogee (Creek) Nation Casinos in Oklahoma. The Everi Mobile App is designed for optimized player engagement, giving casino guests the power of self-service and featuring the operator’s branding. This new launch should benefit the company significantly.
On April 11, EVRI entered into a purchase agreement to acquire certain assets of VKGS LLC (Video King), a privately-owned leading provider of integrated electronic bingo gaming tablets, video gaming content, instant win games, and systems for cash consideration of nearly $59 million.
This acquisition is expected to provide EVRI with complementary assets and an established customer base to enable addition growth in the company’s Games segment.
On April 5, EVRI’s leading mobile technology and advanced e-commerce platform for the sports, hospitality, and entertainment industries, the Venuetize mobile app, announced the launch of Phase Two of the Churchill Downs Racetrack mobile experience.
The experience now showcases the unique features of the iconic brands, the Kentucky Derby and Churchill Downs Racetrack, which is owned and operated by Churchill Downs Incorporated (CHDN).
EVRI’s trailing-12-month gross profit margin of 78.53% is 122.5% higher than the industry average of 35.30%. Similarly, the stock’s trailing-12-month EBITDA margin and net income margin of 43.74% and 14.50% are favorably higher than the industry averages of 10.72% and 4.18%, respectively.
For the first quarter ended March 31, 2023, EVRI’s revenues increased 14.2% year-over-year to $200.50 million. Its adjusted EBITDA rose 3.2% from the year-ago value to $92.50 million. The company’s cash and cash equivalents grew 8.8% year-over-year to $293.20 million. In addition, its adjusted EPS came in at $0.43, an increase of 2.4% from the prior-year quarter.
Street expects EVRI’s revenue for the fiscal year (ending December 2024) to increase 4.8% year-over-year to $855.16 million. Likewise, the consensus EPS estimate of $1.23 for the next year indicates a 13.1% rise year-over-year. In addition, the company topped the consensus revenue estimates in all four trailing quarters.
EVRI’s stock has gained 4.8% over the past month and 3.4% year-to-date to close the last trading session at $14.72.
EVRI’s POWR Ratings reflect this robust outlook. EVRI has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
EVRI has a B grade for Quality, Value, Momentum, and Sentiment. It is ranked #5 out of 99 stocks in the Financial Services (Enterprise) industry.
Beyond what we stated above, we also have EVRI’s ratings for Stability and Growth. Get all EVRI ratings here.
Medallion Financial Corp. (MFIN)
MFIN operates as a finance company. It operates through four segments: Recreation Lending; Home Improvement Lending; Commercial Lending; and Medallion Lending. It offers loans that finance consumer purchases of recreational vehicles, boats, and trailers; consumer home improvements; commercial businesses; and taxi medallions to individuals and small to mid-size businesses.
On June 1, MFIN’s wholly-owned subsidiary, Medallion Bank, announced that it had entered into a definitive agreement with CreditWork, a certified women-owned consumer lender, to offer loans through Credit4Work! Financial benefit program.
Donald Poulton, President and CEO of Medallion Bank, stated, “We are pleased to add CreditWorks to our strategic partnership program as we continue to expand our lending reach. We believe we can help CreditWorks scale the Credit4Work! program nationally with our proven lending platform, comprehensive compliance framework, credit risk management, and ongoing monitoring and testing.”
In terms of the trailing-12-month gross profit margin, MFIN’s 86.20% is 46.1% higher than the 58.99% industry average. And its trailing-12-month EBITDA margin of 55.21% is 167.7% higher than the industry average of 20.63%. Also, the stock’s 16.39% trailing-12-month ROCE is 46.4% higher than the industry average of 11.19%.
MFIN’s net interest income for the second quarter ended June 30, 2023, increased 20.1% year-over-year to $46.69 million. Its income before income taxes was $21.15 million, up 7.6% year-over-year. Total net income attributable to MFIN rose 6.5% from the prior year’s quarter to $14.17 million. The company’s net income per common share came in at $0.62, up 14.8% year-over-year.
Analysts expect MFIN’s revenue for the third quarter (ending September 2023) to increase 12.5% year-over-year to $47.28 million. The company’s EPS for the ongoing quarter is expected to grow 41.7% year-over-year to $0.45. Moreover, it surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Over the past month, the stock has gained 20.5% and 55.8% over the past year to close the last trading session at $9.17.
MFIN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
MFIN is ranked first among 99 stocks in the Financial Services (Enterprise) industry. The stock has a B grade for Quality and Value.
To see the other ratings of MFIN for Growth, Momentum, Stability, and Sentiment, click here.
Manhattan Bridge Capital, Inc. (LOAN)
LOAN is a real estate finance company that originates, services, and manages a portfolio of first mortgage loans. The company provides short-term, secured, and non-banking loans to real estate investors to fund their acquisition, renovation, rehabilitation, or development of residential or commercial properties in the New York metropolitan area and Florida.
On April 11, LOAN’s Board of Directors authorized a common stock repurchase plan allowing the buy-back of up to 100,000 common shares in market or off-market transactions over the next twelve months. This is expected to create shareholder value for the company.
LOAN’s trailing-12-month gross profit margin of 100% is 69.5% higher than the industry average of 58.99%. Likewise, the stock’s net income margin of 75.40% is 193.8% higher than the 25.66% industry average. Also, its trailing-12-month ROTA of 7.13% is significantly higher than the industry average of 1.10%.
LOAN’s revenue increased 13.3% year-over-year to $2.40 million in the second quarter that ended June 30, 2023. The increase in revenues was primarily due to higher interest rates charged on the company’s commercial loans. Also, its interest income from loans grew 20.5% from the year-ago value to $1.94 million. Its income from operations was $1.40 million, up 3.7% year-over-year.
Furthermore, the company’s net income was $1.42 million or $0.12, compared to $1.36 million or $0.12 during the same period of 2022.
Analysts expect LOAN’s EPS to increase 9.1% year-over-year for the third quarter ending September 2023. Also, the consensus EPS estimate of $0.47 for the fiscal year (ending December 2023) reflects a 4.4% year-over-year improvement.
Shares of LOAN have gained 1.1% over the past month to close the last trading session at $4.98.
LOAN’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, translating to Strong Buy in our proprietary rating system.
LOAN has a B grade for Quality, Stability, and Sentiment. The stock is ranked #4 in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see LOAN’s ratings for Momentum, Value, and Growth here.
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EVRI shares were unchanged in premarket trading Friday. Year-to-date, EVRI has gained 2.58%, versus a 19.21% 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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