Compass Point Remains Sidelined Following Santander Consumer USA's (SC) 10-K

Compass Point maintained a Neutral rating on Santander Consumer USA Holdings Inc. (NYSE: SC), and cut the price target to $12.00 (from $13.00), following the company's 10-K filing. The majority of SC's restatements reflect a change in reserve methodology whereby reserves for TDRs and other receivables are determined separately, differing from a prior top down approach to the aggregate credit portfolio. Based on amended disclosures, SC also disclosed that the dollar amount of troubled debt restructurings increased by 13.8% in 2015. Given the shifting mix of assets to a lower FICO borrower, Compass Point would expect this trend to continue going forward as a greater number of SC customers qualify for restructuring efforts.

Analyst Lucy Huntley commented, "We reiterate our Neutral rating and revise our PT to $12 from $13 following the filing of SC's 10-K. While we recognize that the filing removes some short-term overhang from the shares we believe that fundamental risks remain that will continue to weigh on earnings and shares over the shortterm. The personal loan portfolio will continue to be a source of variability to results, particularly if demand for unsecured consumer paper remains weak and SC continues to take FV and credit costs associated with its Bluestem relationship. Over the course of the next six months, SC also plans to issue unsecured debt during a time where costs are materially higher than in periods past. We also think that the low double digit growth in TDRs over 2015 suggests that provision expense expectations will have to increase across the board given the company's reserve methodology for lifetime losses for that segment of the portfolio. As SC continues to lend to a deeper subprime customer, this poses another headwind to earnings. We also believe that upside to shares is limited by SC's tangible BVPS value of $11.87 given the current apprehension with respect to consumer lenders across the board. We revise our 2016 EPS estimate to $2.17 and our 2017 estimate to $2.27 to reflect higher credit costs from TDRs, flat margins from debt issuance, and uncertainty from the personal loan portfolio. Our price target of $12 is based on average of two valuation metrics: 1) 6x 2016E EPS and 2) 1x tangible BVPS of $11.87."

For an analyst ratings summary and ratings history on Santander Consumer USA Holdings Inc. click here. For more ratings news on Santander Consumer USA Holdings Inc. click here.

Shares of Santander Consumer USA Holdings Inc. closed at $10.49 yesterday.

You May Also Be Interested In

• Walmart (WMT) PT Lowered to $130 at UBS on Investment Narrative's Competing Dynamics
• Advance Auto Parts (AAP) PT Lowered to $43 at Truist Securities
• Deere (DE) PT Raised to $585 at JPMorgan