The financial sector is poised for significant growth, driven by the easy accessibility of digital financial services, increasing consumer spending, and rapid technological evolution. The transformation of the financial sector is characterized by innovations such as online banking, mobile payments, and fintech.
Amid this backdrop, it could be wise to buy fundamentally strong financial stocks: Morningstar, Inc. (MORN), Qifu Technology, Inc. (QFIN), and Manhattan Bridge Capital, Inc. (LOAN).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s going on in the financial services industry.
Financial services include investment brokerage, insurance, real estate, banking, asset management services, wealth management, Buy Now Pay Later (BNPL), etc. The demand for financial services looks promising, and the financial sector seems well-positioned to remain resilient. It is expected to witness robust growth, driven by the strong demand for financial services amongst enterprises and individuals.
With digitization reshaping the financial industry’s prospects, the financial services market is projected to grow at a CAGR of 7.6% to reach $44.93 trillion by 2026. Financial institutions are now enhancing user experiences through personalized services and fast transaction processing while adopting cloud, mobile, and blockchain technology.
By leveraging AI and Machine Learning, financial companies are transforming task automation, fraud detection, and customer support. On top of it, the shift towards digital payments and online transactions presents significant growth opportunities for consumer finance companies. As a result, the global consumer finance market is expected to reach $1.96 trillion by 2029, growing at a CAGR of 7.1%.
Furthermore, a rise in underlying inflation, a tight labor market, and a strong economy have prevented the Federal Reserve from cutting interest rates in March. With the central bank unclear on when it would start with its interest rate cuts, economists now believe that the borrowing costs could remain higher for longer.
This could be beneficial for financial companies as their revenues get a boost in a high-interest-rate environment. Investors’ interest in financial stocks is evident from the Financial Select Sector SPDR ETF’s (XLF) 25.4% returns over the past nine months.
Considering these conducive trends, let’s analyze the fundamental aspects of the three financial stocks.
Morningstar, Inc. (MORN)
MORN provides independent investment insights internationally. The company operates in five segments: Morningstar Data and Analytics, PitchBook, Morningstar Wealth, Morningstar Credit, and Morningstar Retirement.
In terms of the trailing-12-month Capex/Sales, MORN’s 5.84% is 184% higher than the 2.06% industry average. Its 4.15% trailing-12-month Return on Total Assets is 280.9% higher than the 1.09% industry average. Likewise, its 0.59x trailing-12-month asset turnover ratio is 180% higher than the industry average of 0.21x.
MORN’s revenue for the fourth quarter ended December 31, 2023, increased 13.4% year-over-year to $538.70 million. Its adjusted operating income rose 70.2% year-over-year to $113 million. The company’s net income rose significantly over the year-ago value to $73.50 million. In addition, its adjusted net income per share came in at $1.97, up 239.7% over the prior-year quarter.
Analysts expect MORN’s EPS and revenue for the fiscal year 2024 to increase 28.9% and 13% year-over-year to $6.60 and $2.30 billion, respectively. Over the past nine months, the stock has gained 46.2% to close the last trading session at $298.25.
MORN’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #7 out of 99 stocks in the Financial Services (Enterprise) industry. It has an A grade for Sentiment and a B for Growth and Stability. To access MORN’s grades for Value, Momentum, and Quality, click here.
Qifu Technology, Inc. (QFIN)
Headquartered in Shanghai, the People's Republic of China, QFIN and its subsidiaries operate a credit-tech platform under the 360 Jietiao brand in the People's Republic of China. It provides credit-driven services and platform services.
In terms of the trailing-12-month EBIT margin, QFIN’s 50.02% is 128.6% higher than the 21.88% industry average. Likewise, its 50.56% trailing-12-month EBITDA margin is 141.7% higher than the industry average of 20.92%. Additionally, its 8.79% trailing-12-month Return on Total Assets is 707.3% higher than the industry average of 1.09%.
QFIN’s net revenue for the fiscal third quarter that ended September 30, 2023, increased 3.3% year-over-year to RMB4.28 billion ($594.62 million). Its non-GAAP income from operations rose 18.6% over the prior-year quarter to RMB1.43 billion ($198.67 million).
For the same quarter, the company’s non-GAAP net income attributable to shareholders of QFIN and non-GAAP net income per ADS attributable to ordinary shareholders of QFIN came in at RMB1.19 ($165.33 million) and RMB7.20, respectively, up 13.7% and 11.1% year-over-year.
Street expects QFIN’s revenue for the quarter ended December 31, 2023, to increase 5.9% year-over-year to $594.12 million. Its EPS for the fiscal year ended December 31, 2024, and it is expected to increase 14.2% year-over-year to $4.29. Over the past month, the stock has gained 10.7% to close the last trading session at $15.90.
It’s no surprise that QFIN has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Momentum, Sentiment, and Quality. Within the B-rated Consumer Financial Services industry, it is ranked first out of 46 stocks. In total, we rate QFIN on eight different levels. Beyond what we stated above, we also have given QFIN grades for Growth and Stability. Get all the QFIN ratings here.
Manhattan Bridge Capital, Inc. (LOAN)
LOAN is a real estate finance company that originates, services, and manages a portfolio of first mortgage loans in the United States. The company 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.
In terms of the trailing-12-month gross profit margin, LOAN’s 100% is 66.8% higher than the 59.95% industry average. Its 7.33% trailing-12-month Return on Total Assets is 573.3% higher than the 1.09% industry average. Additionally, its 12.37% trailing-12-month Return on Common Equity is 14.2% higher than the 10.83% industry average.
For the third quarter that ended September 30, 2023, LOAN’s total revenues increased 15.5% year-over-year to $2.43 million, and its interest income from loans rose 18.8% over the prior-year quarter to $1.99 million. Also, 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.
For the quarter ended December 31, 2023, LOAN’s EPS is expected to increase 20% year-over-year to $0.12. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained marginally to close the last trading session at $4.71.
LOAN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Stability, Sentiment, and Quality. It is ranked first in the Financial Services (Enterprise) industry. To see LOAN’s Growth, Value, and Momentum ratings, click here.
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MORN shares were trading at $298.65 per share on Monday morning, up $0.40 (+0.13%). Year-to-date, MORN has gained 4.49%, versus a 7.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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