Marlin Business Services Corp’s (MRLN) 2Q08 earnings of $0.14 per share were three cents below the consensus as well as our estimates.
We suspect the weakening economy will continue to impact the new originations, and the delinquencies will continue to rise through 2008. MRLN recently opened its industrial bank, which will lower the cost of funding however we do not expect any significant impact on the earnings in the current year. Based on the results and our concerns for further deterioration in growth and credit quality, we have lowered our FY08 and FY09 estimates to $0.58 and $0.82 per share, respectively.
MRLN currently trades at 9.3 times the consensus forward estimate, a 29% discount to the peer group median. On a price-to-book basis, the shares now trade at a 52% discount to the peer median, versus a 59% discount in June. We note again that peer group multiples vary widely, and that the medians can shift somewhat rapidly.
Relative pricing continues to look attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. MRLN’s PEG ratio is 0.58, a 40% discount to the 0.96 median for the peer group. We however do note that a slowing economy could call the growth rate into question. On a price-to-book basis, the 52% discount also looks somewhat attractive, given a ROE 47% below median.
We are setting our six-month target price to $8.00 per share, which equates to 13.8x our 2008 earnings estimate of $0.58 per share or 0.62x our estimated book value six months out. With no dividend to supplement the return, this equates to a 5.1% expected negative total return over the period. As a result, we are maintaining our Sell recommendation on the shares.