Santander Consumer USA Holdings Is Being Hurt By Industry Overhangs
Alpha Gen Capital
Alpha Gen Capital
Santander And Its Down Hill Slide
Today, 1:38 PM
- Though the company this week said it still isn't ready to file its Q2 10-Q, it did say it doesn't foresee a material interruption to or change in normal business activities, and the accounting issues relate only to non-cash items.
- The stock has lost about two-thirds in less than a year, and trades below book value and at 5x estimated earnings, even with an 18% ROE. While value investors may be tempted, the myriad red flags surrounding Santander Consumer (SC +0.7%) aren't going away soon, writes Michael Regan.
- Subprime auto lending is just too easy of a target these days, says Regan, noting recent exits of CEO Thomas Dundon and Chairperson Blythe Masters (who moved on to be blockchain advisor to Banco Santander).
- Then there's the credit cycle, and Santander's net charge-off rate is notable for being not only higher, but more volatile than that of other auto lenders that don't focus on subprime.
- A contrarian might note Santander has Buy ratings from only six of 19 firms covering it. Who's left to sell?
Tue, Aug. 2, 5:30 PM
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Tue, Jun. 14, 12:20 PM
- In conjunction with CFO Brian Doubles' appearance at a conference this morning, the company said it expects a 20-30 basis point increase in net charge off rates over the next year.
- BTIG's Mark Palmer notes Doubles says Synchrony (SYF -14.3%) continues to see the credit environment as "benign," though management anticipates "softening" in customers' ability to pay off balances. Palmer also says credit metrics currently are at unusually low (good) levels, and "normalization" should be expected at this point in the cycle.
- There's also a positive catalyst on the horizon in the CCAR results, at which Palmer expects the initiation of buybacks and a dividend.
- He reiterates his Buy rating, with $42 price target (60% upside) based off of 12.5x 2018 estimated EPS of $3.33.
- Discover (DFS -3.1%), Capital One (COF -6%), American Express (AXP -3.9%), OneMain Holdings (OMF -7.3%), Santander Consumer (SC -5.5%), Ally Financial (ALLY -2.9%)
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Thu, Jun. 2, 12:20 PM
- "Auto is clearly a little stretched, in my opinion," says JPMorgan (JPM -0.3%) CEO Jamie Dimon, speaking at a conference. "Someone is going to get hurt... we don't do much of that."
- Speaking at the same conference, U.S. Bancorp (USB -0.3%) CEO Richard Davis calls the auto loan market "overheated" thanks to pricing competition .“It’s a business you have to watch through the cycles, and right now it is probably at its least attractive. But in what could be a day, a month or a year, it could be very attractive.”
- Interested players: COF, SC, ALLY, CACC
Thu, May 12, 2:18 PM
- There's no hint of any sort of sustained bounce for LendingClub (LC -5.9%), down sharply again today, and off nearly 50% on the week.
- That doesn't necessarily make it cheap though, notes Bloomberg, as it's still trading for about 15x estimated 2017 earnings.
- "It started out as an Internet company, then it became a fintech company, and now it just looks like a specialty loan broker," says Portales Partners' William Ryan. "Even at $4 there's just too much risk here."
- Checking specialty finance peers like Santander Consumer (NYSE:SC), Synchrony Financial (NYSE:SYF), and OneMain Holdings (NYSE:OMF), LendingClub is more expensive based on enterprise value-to-EBITDA.
- On a more bullish note, Craig-Hallum Capital says in a takeover LC might be valued like a bond, with a bank interested in a platform creating an $11B loan portfolio with a 5.5% risk-adjusted yield. On that basis, you could make the case for a $12.28 per share valuation. In a distressed scenario, though, that calculation goes out the window.
- OnDeck Capital (ONDK -6.4%)
Wed, May 11, 10:07 AM
Wed, Apr. 27, 2:30 PM
- Santander Consumer (SC +8.4%) has previously been punished by investors when its algorithms told it to pull back from subprime auto originations, but today it's credit worries foremost on investors' minds, writes BTIG's Mark Palmer. To wit: The stock (prior to today) trading for just 5.3x forward earnings.
- Management's conservative approach to underwriting is being rewarded today, as investors focus on better-than-expected loan loss provisions, rather than a loss of market share.
- Core retail auto originations fell 15% Y/Y to $2.6B, but the allowance ratio held about steady at 12.4%, and provisions fell sequentially by $83M to $707M.
- Palmer maintains his Buy rating and $21 price target (about 75% upside).
- Previously: More on Santander Consumer's Q1 beat (April 27)
Wed, Apr. 27, 7:37 AM
- Q1 net finance and other interest income of $1.3B up 11% Y/Y. Finance receivables, loans, and leases up 2.6% to $33.7B.
- Total auto originations of $6.8B, with Chrysler Capital lease originations of $1.6B up 5%, Chrysler Capital retail originations of $2.5B up 1%. Core retail auto originations of $2.6B down 15%.
- Serviced for others portfolio of $14.2B up 27%.
- Allowance ratio of 12.4% up 10 basis points from last quarter. Provisions of $707M up from $675M a year ago.
- Conference call at 9 ET
- Previously: Santander Consumer beats by $0.03 (April 27)
- SC flat premarket
Wed, Apr. 27, 6:06 AM
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Santander Consumer USA Holdings, Inc. operates as a holding company, which focuses on vehicle finance and unsecured consumer lending products. The company's primary business is the indirect origination of retail installment contracts principally through manufacturer franchised dealers in... More
Industry: Savings & Loans
Country: United States