The financial sector was one of the hardest-hit sectors last year as the near-zero interest rate environment and fewer financial transactions amid the recession diminished the revenues of financial companies significantly, particularly banks and insurers. While the interest-rate environment remains unchanged, the sector is now witnessing a solid recovery on the back of increasing financial transactions and capital market activities. Investors’ interest in the financial sector is evident in the Financial Select Sector SPDR ETF’s (XLF) 23.8% gains year-to-date versus the SPDR S&P 500 Trust ETF’s (SPY) 16.7% returns.
Adding to the positives, the Federal Reserve has hinted at raising interest rates as soon as late 2023, a year earlier than originally anticipated, which should help financial companies expand their profit margins. Furthermore, the sector is expected to grow with the ongoing digital transformation. According to The Business Research Company, the global financial services market is expected to grow at a 9.9% CAGR to $22.5 trillion in 2021.
With these factors in mind, we believe established financial companies Capital One Financial Corporation (COF), KeyCorp (KEY), Ally Financial Inc. (ALLY), and OneMain Holdings, Inc. (OMF) could be solid bets now. They are currently trading below their 52-week highs, but we think have plenty of upside to deliver.
Capital One Financial Corporation (COF)
COF is a diversified financial services holding company that offers a range of financial products and services to consumers, small businesses and commercial clients through branches, the internet and other distribution channels. It operates through three segments: Credit Card; Consumer Banking; and Commercial Banking and other.
The company agreed with Williams-Sonoma, Inc. (WSM) last month to become the exclusive long-term issuing partner for WSM’s new co-brand and private-label credit card program. The partnership is expected to provide COF a strong platform for future growth and returns in its Partnerships credit card business.
COF’s income from continuing operations increased 37% sequentially to $4.20 billion for the first quarter, ended March 31, 2021. Its net income grew 30% sequentially to $3.32 billion. Its total assets increased 8% year-over-year to $421.81 billion. Also, its EPS came in at $7.03, up 31% year-over-year.
For its fiscal year 2021, analysts expect COF’s EPS to be $19.56, which represents a 277.6% year-over-year increase. It surpassed the Street's EPS estimates in three of the trailing four quarters. Its annual revenue is expected to rise 5.2% year-over-year to $30.46 billion in its fiscal year 2022. The stock has gained 161.8% over the past year to close yesterday’s trading session at $158.84. It is currently trading 5.5% below its 52-week high of $168, which it hit on June 4, 2021.
COF’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Sentiment, and a B grade for Growth and Momentum. Within the Consumer Financial Services industry, COF is ranked #9 of 51 stocks.
To see the additional POWR Ratings for COF (Stability, Value, and Quality), click here.
KeyCorp (KEY)
KEY is the holding company for KeyBank National Association, which provides various retail and commercial banking products and services in the United States. The company operates in two segments: Consumer Bank and Commercial Bank. It offers various deposit and investment products and services.
The company expanded its Utilities, Power & Renewables Group on May 3, 2021, with the addition of a six-person renewable energy investment banking team. Andy Redinger, head of KEY’s Utilities, Power & Renewable Energy Group said, "The addition of this highly successful mergers & acquisition team, which will further help broaden our offering and better serve our clients, is an important step towards that commitment."
KEY’s revenue surged 19.4% year-over-year to $1.75 billion for its fiscal first quarter, ended March 31, 2021. Its non-interest income grew 54.7% year-over-year to $738 million. Its income from continuing operations came in at $591 million, which represents a 400.8% year-over-year increase.
Analysts expect KEY’s EPS and revenue to increase 71.7% and 3.4%, respectively, year-over-year to $2.18 and $6.94 billion in its fiscal year 2021. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 75.5% over the past year to close yesterday’s trading session at $19.99. It is currently trading 15.5% below its 52-week high of $23.65, which it hit on May 18, 2021.
KEY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. It has a B grade for Growth.
Click here to access KEY’s ratings for Value, Momentum, Stability, Sentiment, and Quality as well. KEY is ranked #1 of 11 stocks in the Money Center Banks industry.
Ally Financial Inc. (ALLY)
ALLY is a bank holding company that provides various digital financial products and services to retail, commercial, and corporate customers primarily in the United States and Canada. The company operates through four operating segments: Automotive Finance; Insurance; Mortgage Finance; and Corporate Finance.
On July 13, ALLY’s board of directors authorized the repurchase of up to $2 billion of its common stock for 2021. Jeffrey J. Brown, the company’s CEO said, "The strength of our businesses and resiliency of our balance sheet, including our robust capital position, support our ability to meaningfully increase our common dividend and share repurchase program."
The company’s net financing revenue surged 19.7% year-over-year to $1.37 billion for its fiscal first quarter, ended March 31, 2021. ALLY’s pre-tax income came in at $1.01 billion versus a $411 million loss in the prior-year period. Its net income came in at $796 million compared to a $319 million net loss in the year-ago period. Also, its adjusted EPS for the quarter came in at $2.09 compared to a $0.44 adjusted loss per share in the previous quarter.
For its fiscal year 2021, analysts expect ALLY’s EPS to come in at $6.43, which represents a 112.2% year-over-year increase. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 13% year-over-year to $1.90 billion for the quarter ending September 30, 2021. ALLY has gained 145.6% over the past year to close yesterday’s trading session at $51.13. The stock is currently trading 9.7% below its 52-week high of $56.61, which it hit on June 2, 2021.
ALLY’s POWR Ratings reflect solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system. It has a B grade for Growth and Momentum.
Click here to see the additional POWR Ratings for ALLY (Value, Sentiment, Quality, and Stability). ALLY is ranked #13 in the Consumer Financial Services industry.
OneMain Holdings, Inc. (OMF)
Financial services holding company OMF is engaged in the consumer finance and insurance businesses. It operates through a network of roughly 1,500 branch offices in 44 states across the United States and through its website—onemainfinancial.com. Its segments include Consumer and Insurance, Acquisitions and Servicing, Real Estate, and Other.
In April OMF agreed to acquire Trim, which is a customer-focused financial wellness fintech. The acquisition is expected to help OMF expand its product and services portfolio and contribute to its vision of providing better solutions for consumers.
OMF’s net interest income increased 158.4% year-over-year to $827 million for the first quarter, ended March 31, 2021. Its income before taxes grew 1,169.8% year-over-year to $546 million, while its net income increased 1,190.6% year-over-year to $413 million. Also, its EPS came in at $3.06, up 1,175% year-over-year.
OMF’s EPS is expected to increase 57% year-over-year to $9.53 in its fiscal year 2021. It surpassed the consensus EPS estimates in each of the trailing four quarters. The company’s revenue is expected to increase 7.4% year-over-year to $3.63 billion in its fiscal year 2022. The stock has gained nearly 151.7% over the past year to close yesterday’s trading session at $59.78. It is currently trading 3.4% below its 52-week high of $61.90, which it hit on June 25, 2021.
It’s no surprise that OMF has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock has a B grade for Momentum, Sentiment, Value, and Quality.
Click here to see OMF’s ratings for Growth and Stability also. OMF is ranked #2 in the Consumer Financial Services industry.
COF shares were trading at $160.11 per share on Thursday afternoon, up $1.27 (+0.80%). Year-to-date, COF has gained 62.94%, versus a 17.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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