On Thursday, Keefe, Bruyette & Woods revised its share price target for Newtek Business Services (NASDAQ:NEWT), reducing it to $16 from a previous $17, while maintaining a Market Perform rating on the stock.
The adjustment follows Newtek's fourth-quarter earnings, which fell slightly short of expectations. The miss was attributed to weaker spread income and a higher provision, although gains on sale (GOS) fees were robust, and expenses were effectively managed.
The firm anticipates these two positive trends, strong GOS fees and controlled expenses, to persist into 2024. Newtek's balance sheet is expected to show growth, supported by a strong pipeline, and the net interest margin (NIM) is projected to expand due to a favorable mix shift in deposits and loans. Management has reaffirmed its earnings per share (EPS) guidance for 2024, targeting between $1.80 and $2.00. The firm's own estimate remains at the midpoint of this range.
Despite Newtek's successful first year operating under a bank charter, Keefe, Bruyette & Woods has expressed caution. The firm notes that Newtek's history as a bank is still relatively brief, and the future direction of credit trends is currently unclear. This uncertainty underpins the decision to maintain a Market Perform rating for the stock.
The report suggests that while Newtek has demonstrated some operational strengths, the full impact of its transition to a bank charter and the evolution of its credit profile are yet to be fully realized. The company's EPS guidance for 2024 reflects management's confidence in Newtek's performance and strategic direction.
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