Zacks Industry Outlook Highlights Mr. Cooper and Enova International

For Immediate ReleaseChicago, IL – November 6, 2024 – Today, Zacks Equity Research discusses Mr. Cooper Group Inc. COOP and Enova International, Inc. ENVA.Industry: Consumer LoansLink: https://www.zacks.com/commentary/2364048/buy-these-2-consumer-loan-stocks-despite-industry-challengesThe Zacks Consumer Loans industry continues to witness weakening asset quality. The industry also bears the brunt of inflation, relatively higher rates and a challenging macroeconomic backdrop.Though the Federal Reserve plans to cut rates as soon as September, consumers understand that high interest rates are here to stay for some time, and demand for the loans is likely to witness modest improvement. Yet, easing lending standards, stabilizing consumer sentiments and digitizing operations will support consumer loan providers. So, industry players like Mr. Cooper Group Inc. and Enova International, Inc. are worth considering right now.About the IndustryThe Zacks Consumer Loans industry comprises companies that provide mortgages, refinancing, home equity lines of credit, credit card loans, automobile loans, education/student loans and personal loans, among others. These help the industry players generate net interest income (NII), which forms the most important part of total revenues. Prospects of the companies in this industry are highly sensitive to the nation's overall economic condition and consumer sentiments.In addition to offering the above-mentioned products and services, many consumer loan providers are involved in businesses like commercial lending, insurance, loan servicing and asset recovery. These support the companies in generating fee revenues. Furthermore, this helps the firms diversify revenue sources and be less dependent on the vagaries of the economy.3 Themes Influencing the Consumer Loan IndustryAsset Quality: For most of 2020, consumer loan providers built additional provisions to tide over unexpected defaults and payment delays due to the economic downturn resulting from the COVID-19 mayhem. This considerably hurt their financials. However, with solid economic growth and support from government stimulus packages, industry players began to release these reserves back into the income statement.Of late, high inflation and cost of living, and weakening employment picture have taken a toll on consumers' ability to repay loans. Thus, consumer loan providers are building additional reserves to counter any fallout from unexpected defaults and payment delays. This is leading to a deterioration in industry players' asset quality, and several credit quality metrics have crept up above pre-pandemic levels.Interest Rate Cuts & Loan Demand: Though the Federal Reserve lowered the interest rates by 50 basis points and is likely to follow this up with more cuts this year and in 2025, interest rates remain relatively high. Hence, demand for consumer loans is less likely to significantly improve. The Conference Board Consumer Confidence Index rose in October (recording the strongest monthly gain since March 2021).However, Dana M. Peterson, Chief Economist at The Conference Board, noted, "still did not break free of the narrow range that has prevailed over the past two years." Also, the share of consumers anticipating higher interest rates over the next 12 months increased in October after declining for four consecutive months.Hence, with consumers already facing the adverse impact of prolonged high inflation, demand for loans will likely be modest in the near term. Thus, industry players are expected to record marginal growth in net interest margin (NIM) and NII.Lending Standards: With the nation's big credit reporting agencies removing all tax liens from consumer credit reports since 2018, several consumers' credit scores have improved. This has raised the number of consumers for the industry participants. Further, easing credit lending standards is helping consumer loan providers meet loan demand.Zacks Industry Rank Reflects Grim PictureThe Zacks Consumer Loans industry is a 16-stock group within the broader Zacks Finance sector. The industry currently carries a Zacks Industry Rank #154, which places it in the bottom 38% of more than 250 Zacks industries.The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates underperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group's earnings growth potential. In the past year, the industry's earnings estimates for the current year have been revised 2.7% lower.Before we present a couple of stocks that you may want to bet on despite a tough industry backdrop, take a look at the industry's recent stock market performance and valuation picture.Industry vs. Broader MarketThe Zacks Consumer Loans industry has outperformed the Zacks S&P 500 composite and its sector over the past year.The stocks in this industry have collectively soared 52.5% over this period, while the Zacks S&P 500 composite and the Zacks Finance sector have jumped 31.5% and 29.9%, respectively.Industry ValuationOne might get a good sense of the industry's relative valuation by looking at its price-to-tangible book ratio (P/TBV), commonly used for valuing consumer loan stocks because of significant variations in their earnings results from one quarter to the next.The industry currently has a trailing 12-month P/TBV of 1.30X, above the median level of 1.15X over the past five years. This compares with the highest level of 1.58X and the lowest level of 0.48X over this period. The industry is trading at a considerable discount when compared with the market at large, as the trailing 12-month P/TBV ratio for the S&P 500 is 14.60X and the median level is 13.88X.As finance stocks typically have a lower P/TBV, comparing consumer loan providers with the S&P 500 may not make sense to many investors. However, comparing the group's P/ TBV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector's trailing 12-month P/TBV of 5.03X for the same period is way above the Zacks Consumer Loan industry's ratio.2 Consumer Loan Stocks Worth InvestingCooper Group: Headquartered in Coppell, TX, the company is engaged in non-banking services for mortgage loans. The company operates through its primary brands — Mr. Cooper and Xome.Though the demand for mortgages has marginally improved as rates declined, solid growth is less likely to occur anytime soon. Nonetheless, COOP is well-placed to leverage its scale (it is one of the largest non-bank mortgage servicers in the United States) and bolster its top-line growth. Further, the strategic acquisitions of Flagstar Bank N.A.'s mortgage operations earlier this month, and Home Point Capital Inc. and Roosevelt Management Company, LLC in 2023 will boost the company's servicing business.As the demand for loans gradually rises and funding costs stabilize, this Zacks Rank #1 (Strong Buy) company's NII and NIM are expected to witness improvement. You can see the complete list of today's Zacks #1 Rank stocks here.COOP has a market cap of $5.64 billion. The Zacks Consensus Estimate for the company's earnings for 2024 and 2025 has moved 3.1% and 5.8% upward, respectively, over the past 30 days. Also, its shares have gained 11.5% over the past six months.Enova International: Based in Chicago, IL, Enova is a leading financial technology company focused on providing online financial services. The company currently provides services in the United States, the United Kingdom, Canada, Australia and Brazil. ENVA caters to small businesses and capitalizes on its proprietary technology, analytics and customer service capabilities to underwrite and fund loans.Being an early entrant into online lending, the company has completed almost 64 million customer transactions and collected nearly 65 terabytes of consumer behavior data since its launch in 2004. This has enabled Enova to better analyze its specific customer base.Moreover, the company has been diversifying its operations. Some of ENVA's financing products and services are installment loans, line of credit accounts and receivables purchase agreements. Also, the company has undertaken acquisitions to bolster market share.This Zacks Rank #1 company's proprietary underwriting systems leverage advanced risk analytics, including machine learning and artificial intelligence. ENVA has provided more than 11.1 million customers with more than $58 billion in loans to enhance their financial health.Shares of ENVA have surged 42.4% over the past six months. The Zacks Consensus Estimate for the company's earnings for 2024 and 2025 has moved 3.7% and 6.2% north, respectively, over the past 30 days. The company has a market cap of $2.34 billion.Why Haven't You Looked at Zacks' Top Stocks?Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.Today you can access their live picks without cost or obligation.See Stocks Free >>Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.Media ContactZacks Investment Research800-767-3771 ext. 9339support@zacks.comhttps://www.zacks.comPast performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance  for information about the performance numbers displayed in this press release.Zacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. 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