Analysts at BTIG initiated coverage of specialty finance stocks in a note Friday, with five stocks earnings a Buy rating: Ally Financial (NYSE:ALLY) ($51 price target), Atlanticus Holdings (ATLC) ($45 target), LendingClub (NYSE:LC) ($12 target), Synchrony Financial (NYSE:SYF) ($60 target), Upbound Group (UPBD) ($45 target).
The firm said it is positive on the non-prime consumer lending space as it thinks now is the time to invest in the space.
"Non-prime lenders are in the sweet spot of having tightened underwriting (thereby driving margins higher) following the sub-prime recession that began in 3Q21," said the firm.
"We're now seeing origination volumes beginning to accelerate, such that these lenders/retailers are seeing dual-positive effects of higher risk-adjusted margins and increasing top-line growth accelerate their earnings," they added. "We note that sub-prime lenders are taking share from prime lenders as prime credit tightens."
Alternatively, the firm said it is cautious on prime lenders and fintechs. "Credit began deteriorating for the prime lenders in late 2022 / early 2023, and we think we have not yet seen the peak," said BTIG.
"Many of our fintechs have idiosyncratic issues, but two key themes are uneven profitability and funding access that remains volatile."