Amid renewed jitters in the banking sector and the intensifying tussle between both sides of the political aisle regarding raising the U.S. debt ceiling, turbulence in the market is expected to continue in the foreseeable future.
Despite the uncertainties, loading up on quality finance stocks, Everi Holdings Inc. (EVRI), Forrester Research Inc. (FORR), and CPI Card Group Inc. (PMTS) could help investors endure seemingly unending bouts of market volatility and secure impressive risk-adjusted returns.
On April 24, First Republic Bank (FRC), which has been on life support since the recent banking crisis, reported its earnings for the first quarter of fiscal year 2023. It didn’t make for happy reading for investors.
Although the institution has not been bled to death like its more unfortunate peers (Silicon Valley Bank and Signature Bank), the resuscitation of $30 billion by 11 banks has not been enough to prevent FRC from hemorrhaging deposits. During the first quarter, the bank saw its deposits tumble by 40.8% to $104.5 billion, worse than Street expectations of around $145 billion.
To cover deposit outflows, FRC had to borrow heavily at high rates from the Federal Reserve, the Federal Home Loan Bank, and JPMorgan Chase & Co. (JPM), thereby digging itself into a deep profitability hole.
To dig itself out, the bank announced that it was cutting expenses through reductions in executive compensation, condensing office space, and cutting headcount by 20% to 25% in the second quarter.
This episode justifiably sent shockwaves across the broader market, with the S&P 500 declining by 1.6% and the tech-heavy Nasdaq composite plunging by 2%. Similar sentiments were echoed on the other side of the Atlantic as well.
Moreover, the country is living on borrowed time before it defaults on its debts and triggers an ‘economic catastrophe’ unless both political parties find a way to resolve their differences and raise the debt ceiling.
In such a scenario, it would be wise of investors to bank on businesses that are fundamentally strong enough to help them endure the turbulent macroeconomic environment and get their portfolios to the other side in one piece and with healthy returns.
In the above context, let us look closely at the featured finance stocks.
Everi Holdings Inc. (EVRI)
EVRI is a creative entertainment and technology solutions provider for the casino and digital gaming industry. The company operates through two segments: Games and Financial Technology Solutions (FinTech). The latter provides gaming operators with financial technology products and services.
On April 11, EVRI announced that it had entered into a purchase agreement to acquire certain assets of VKGS LLC (Video King) for cash consideration of approximately $59 million to be paid at closing, subject to customary net working capital adjustments. The transaction is expected to be completed within 60 days from the date of the announcement.
The acquisition that is expected to be funded from EVRI’s existing cash in hand will include the majority of Video King’s assets that are complementary to EVRI’s and are expected to provide an established customer base to enable additional growth in its Games segment.
On April 5, EVRI’s leading mobile technology and advanced e-commerce platform for the sports, hospitality, and entertainment industries, the Venuetize mobile app, announced the launch of Phase Two of the Churchill Downs Racetrack mobile experience.
The experience now showcases the unique features of the iconic brands, the Kentucky Derby and Churchill Downs Racetrack, the latter being owned and operated by Churchill Downs Incorporated (CHDN).
On February 28, EVRI announced the commencement of construction of a new facility that, upon completion, will consolidate the manufacturing, assembly, and distribution of its gaming machines currently done in Austin, TX.
With its self-service, fully integrated cash access kiosks, loyalty kiosks, and other FinTech products, the new Las Vegas facility, which will adhere to high levels of environmental and sustainable stewardship during construction and operation, is expected to streamline production and simplify supply chain processes and the distribution of completed products to customers.
For the fiscal year that ended December 31, 2022, EVRI’s revenues increased by 18.5% year-over-year to $782.50 million, while its adjusted EBITDA increased by 7.7% year-over-year to $374.10 million. As a result, EVRI’s net income for the fiscal came in at $120.50 million, or $1.53 per share.
During the fiscal year 2022, EVRI’s management demonstrated confidence in the company’s prospects by repurchasing 5.0 million shares of stock for $84.3 million during 2022, or 5.4% of the then-outstanding shares, at the initiation of the repurchase program. This has also increased the intrinsic value of the holdings of the existing shareholders.
EVRI’s trailing-12-month EBITDA margin of 44.64% is 290.4% higher than the industry average of 11.43%, while its trailing-12-month net income margin of 15.40% is 247.9% higher than the industry average of 4.43%.
Moreover, EVRI’s trailing-12-month ROCE, ROTC, and ROTA of 61.45%, 11.16%, and 6.28% also compare favorably to the respective industry averages of 11.79%, 6.34%, and 3.89%.
EVRI’s revenue for the fiscal year ending December 31, 2023, is expected to increase by 6.3% year-over-year to $831.45 million, while its EPS is expected to come in at $1.04. Both revenue and EPS are expected to increase by a further 3.9% and 13.6% during the next fiscal to come in at $863.45 million and $1.18, respectively.
The stock has dipped 5.6% over the past month to close the last trading session at $15.18.
EVRI’s POWR Ratings reflect its promising outlook. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
EVRI also has an A grade for Quality and B for Value, Sentiment, and Momentum. It is ranked #2 of 100 stocks in the Financial Services (Enterprise) industry.
Click here for additional POWR Ratings for EVRI’s Growth and Stability.
Forrester Research Inc. (FORR)
FORR is an independent research and advisory services firm that sells its products and services through a direct sales force in various locations in the United States, Europe, the United Kingdom, Canada, the Asia Pacific, and internationally. The company operates through three segments: Research; Consulting; and Events.
On January 23, 2023, FORR introduced Forrester Decisions for Partner Ecosystem Marketing, the next generation of its Forrester Decisions for Channel Marketing service.
The value-added service is designed to help marketing leaders modernize their existing partner programs as partner ecosystems further evolve and expand. These partner ecosystems will also include non-transacting partners that play a vital role in actualizing value across the entire customer lifecycle.
For the fiscal year that ended December 31, 2022, FORR’s total revenues increased by 8.8% year-over-year to $537.79 million. During the same period, the company’s adjusted income from operations increased by 8.6% year-over-year to $69.69 million.
As a result, FORR’s adjusted net income for the fiscal increased by 16.5% year-over-year to $47.22 million, while its adjusted EPS came in at $2.46, representing an increase of 17.7% year-over-year.
FORR’s trailing-12-month gross profit margin of 58.39% is 96.3% higher than the industry average of 29.75%. Likewise, its trailing-12-month return on total capital (ROTC) of 7.57% is 7.4% higher than the industry average of 7.05%.
FORR’s EPS and revenue for the fiscal year 2024 are expected to increase by 14.1% and 5.4% year-over-year to $2.67 and $556.91 million, respectively. The company has an impressive earnings surprise history as it has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has dipped 4.4% over the past month to close the last trading session at $30.79.
FORR has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. It also has A grades for Sentiment and Quality.
FORR tops the list of 100 stocks in the Financial Services (Enterprise) industry.
To see additional POWR Ratings for FORR’s Growth, Value, Momentum, and Stability, click here.
CPI Card Group Inc. (PMTS)
As a payment technology company, PMTS provides comprehensive financial payment card solutions in the United States. The company operates through three segments: Debit and Credit; Prepaid Debit; and Other.
On April 18, PMTS announced that it had achieved a milestone of selling over 90 million of its eco-focused payment cards. The success of these cards using upcycled plastic and recovered ocean-bound plastic would support the organization’s sustainability goals.
On November 29, 2022, PMTS announced that Share One, Inc. has successfully integrated the Card@Once® solution with its NewSolutions core processing system. Share One, Inc. is a Credit Union Service Organization (CUSO) and a leading developer of credit union core processing.
This integration would enable Share One’s credit union clientele can instantly issue and print new and replacement EMV® contact and contactless capable payment cards.
For the fiscal year that ended December 31, 2022, PMTS’ total net sales increased by 26.8% year-over-year to $475.75 million. During the same period, the company’s adjusted EBITA and income from operations increased by 27.8% and 33.1% year-over-year to $97.70 million and $79.13 million, respectively.
As a result, PMTS’ net income for the fiscal year increased by 129.2% and 128.7% year-over-year to $36.54 million and $3.11 per share.
PMTS’ trailing-12-month EBITDA margin of 19.76% is 123.3% higher than the industry average of 8.85%, while its trailing-12-month net income margin of 7.68% is 194.6% higher than the industry average of 2.61%. Moreover, the company’s trailing-12-month ROTC and ROTA of 23.25% and 12.32% also compare favorably to the respective industry averages of 1.87% and 0.65%.
Analysts expect PMTS’ revenue and EPS for the fiscal year ending December 31, 2023, to increase by 5.3% and 8.7% year-over-year to $501.08 million and $3.38, respectively. Both metrics are expected to increase by a further 10.3% and 16.7% during the next fiscal to come in at $552.43 million and $3.95, respectively.
Moreover, PMTS has impressed by surpassing consensus EPS estimates in each of the trailing four quarters. The stock has gained 106.9% over the past six months to close the last trading session at $39.94.
PMTS has an overall rating of B, which equates to a Buy in our POWR Ratings system. It also has B grades for Growth and Sentiment.
PMTS is ranked #3 in the same industry. For additional POWR ratings of PMTS for Value, Stability, Quality, and Momentum, click here.
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EVRI shares were trading at $14.87 per share on Wednesday afternoon, up $0.05 (+0.34%). Year-to-date, EVRI has gained 3.62%, versus a 6.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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