SpringLeaf Holdings Analyst Roundup After Q3 Earnings

SpringLeaf Holdings Inc. LEAF beat Q3 EPS expectations Friday and the stock surged 4 percent Monday, trading at $37.99.

Several analysts increased their price targets. Below are highlights along with current ratings and price targets.

JMP Securities - Outperform, price target raised from $36 to $41

“We continue to recommend LEAF shares as the company’s substantial market share in subprime installment lending and improving branch level productivity is driving an upward earnings trajectory. The company's 3Q14 core EPS of $0.55 beat our $0.52 estimate, and the $0.51 consensus, although all of the outperformance came from the SpringCastle book that is attriting. In fairness, while profitability in the Consumer book missed our estimates, the driver was greater upfront provisioning related to robust receivables growth (losses came in below forecast). We slightly raise our 2014 and 2015 EPS estimates considering this quarter’s trends, and initiate a 2016 outlook.”

Credit Suisse - Outperform, price target raised from $35 to $43

“Management noted that the consumer receivables per branch were approximately $4.3MM, which was up Q/Q from $4.1MM. Originations were down 3 percent q/q and up 20% y/y, however we are seeing significant growth in LEAF's auto loan product which began being offered in June and has YTD originated $90.2MM. We again note that this product will likely bring the segment's overall yields down as the product has an average APR of 18 percent (versus unsecured personal loan yields of 31 percent and secured personal loan yields of 28 percent) but losses should also benefit.”

Jefferies - Buy, price target raised from $39 to 42

“We are increasing our estimates and PT as a result of higher-than- forecast portfolio growth, reduced NCOs from recovery improvements and outperformance of the SpringCastle portfolio. While the company did not discuss M&A specifics, we estimate LEAF has >$4B of excess liquidity and remains a top contender for OneMain. For the fourth quarter in a row, total receivables per branch have exceeded 20 percent YoY. We note the recent launch of direct auto lending appears to be ramping well as originations grew to $38M from $26M in the prior quarter. Yields in the consumer portfolio were flat QoQ indicating a rational pricing environment and normal competition.”

Citi - Buy, price target raised from $35 to $43

“The core business is performing well and we believe LEAF is well-capitalized to make a large acquisition if one were to become available. And they have a war chest of $2.8bn of cash and liquid securities, which should grow further in Q4. Outside of M&A, LEAF can pay down debt and invest organically with the capital generated from the recent mortgage sales. We are raising our 2015/2016 est’s +5c each to reflect better performance at SpringCastle. Our $43 target is 18x our 2015 EPS est. However, we believe the market is valuing the stock on potential earnings power from putting their excess capital to work in a large acquisition. If we assume LEAF generates a high-teens ROE on our 2015 projected equity capital (=they do a large deal) that implies ~$3.50+ of earnings power, putting our tgt closer to 12x.”

Barclays - Overweight, $35 price target

“Overall, it was a strong quarter for core earnings with solid asset growth and improving credit. In addition, LEAF rolled out its auto loan product across all branches, which contributed to receivables growth. While it appears everything is moving in the right direction, investors will likely continue to focus on uses of LEAF's excess capital, which could be ~$1B. Overall, we believe the cash generated from the real estate monetization creates significant optionality for LEAF, which could produce substantially higher earnings power than is reflected in current estimates.”