Santander Consumer USA Holdings Inc. SC is well poised to grow given the consistent increase in its top line, solid earnings performance and a strong balance sheet position. Thus, this Zacks Rank #2 (Buy) stock seems like an attractive investment opportunity right now.
Further, the analysts are bullish on the stock as it has been witnessing solid upward estimate revisions. Over the past 30 days, the Zacks Consensus Estimate for earnings has been raised 6% and 2.3% for 2019 and 2020, respectively.
Also, the company has an impressive price performance. The stock has jumped 50.8% so far this year, outperforming the industry’s rally of 27.3%.
Why the stock is an attractive choice
Earnings growth: Over the past three to five years, Santander Consumer recorded earnings per share decline of 0.7%. Nonetheless, an improving economy and rise in demand for consumer loans are expected to reverse the trend and the company’s earnings are projected to grow 10.9% and 9.4% for 2019 and 2020, respectively.
Further, the company’s long-term (three to five years) expected earnings growth rate of 12% promises rewards for shareholders.
Moreover, it delivered an average positive earnings surprise of 2% in the trailing four quarters.
Revenue strength: Santander Consumer’s top-line growth reflects solid loan growth and favorable operating backdrop. The company’s revenues witnessed a five-year (2014-2018) CAGR of 7.8%.
Further, the company’s projected sales growth rate of 12.8% for 2019 and 6.8% for 2020 indicate continuation of the momentum.
Solid capital deployment actions: Santander Consumer’s capital deployment plan is impressive. In July, the company announced a 10% hike in quarterly dividend to 22 cents per share. This followed a whopping 300% increase in dividend last year.
Also, Santander Consumer has a share repurchase plan in place. It initiated a share buyback plan last year, with authorization of $200 million (completed in January 2019) and followed that up with repurchase plan worth $400 million, which expired in June. Further, in July 2019, the company announced an authorization to buyback $1.1 billion worth of shares through the second quarter 2020.
The company’s lower debt/equity ratio compared with the industry average, and strong capital and liquidity position will lead to sustainable capital deployment activities, boosting shareholders’ value.
Strong leverage: Santander Consumer’s debt/equity ratio is nil compared with the industry average of 0.85. The relatively strong financial health of the company will help it perform better than its peers in a dynamic business environment.
Stock seems undervalued: Santander Consumer seems undervalued when compared with the broader industry. Its current price-sales and PEG ratios are lower than the respective industry averages.
Also, the stock has a Value Score of A. Our research shows that stocks with a Style Score of A or B when combined with a Zacks Rank #1 (Strong Buy) or 2 offer the best upside potential.
Other Stocks to Consider
The Zacks Consensus Estimate for Ally Financial ALLY has moved 1.4% upward for 2019 in the past 30 days. Shares of this Zacks Rank #2 company have returned 36.7% year to date.
The Zacks Consensus Estimate for Navient Corporation NAVI has been revised 14% upward for 2019 in the past 30 days. Its share price has surged 51.1% so far this year. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for Credit Acceptance Corporation CACC has been revised 2.2% upward for 2019 in the past 30 days. The company’s share price has rallied 28.8% so far this year. The company has a Zacks Rank of 2.
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Credit Acceptance Corporation (CACC) : Free Stock Analysis Report
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Navient Corporation (NAVI) : Free Stock Analysis Report
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