FBR Capital Downgrades OneMain (OMF) to Market Perform; Credit Deteriorates and Growth Slows
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FBR Capital downgraded OneMain (NYSE: OMF) from Outperform to Market Perform with a price target of $26.00 (from $40.00) as credit deteriorates and growth slows.
Analyst Bob Ramsey commented, "We downgrade shares of OneMain Holdings to Market Perform from Outperform following 3Q16 results. Our prior thesis on OMF had been that (1) OMF will be able to generate double-digit EPS growth with solid origination volumes and synergies from the Springleaf/OneMain merger; and (2) credit trends would remain strong, enabling OMF to generate attractive ROEs and attract investors. This quarter, growth and credit showed signs of stress, and OMF reduced its 2017 earnings guidance for a second time to roughly 40% less than the guidance just a year ago. It attributed most of the pressure to merger integration execution issues. While OMF screens cheap, we do not anticipate the shares garnering a higher multiple given the increased uncertainty and credit concerns. To reflect slower loan growth and higher credit costs, we lower our 4Q16 operating EPS estimate to $0.80 (from $1.26) and our 2017 operating EPS estimate to $3.75 (from $5.75). Given our lower estimates, we reduce our price target to $26 (from $40), equal to 6.9x our 2017 EPS estimate and 3.1x TBV."
Shares of OneMain closed at $27.57 yesterday.
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