Despite the roaring market and economy, the magnitude of plastic debt forces an uncomfortable and cynical discussion: stocks benefiting from credit card delinquencies.
Last year, Americans’ collective plastic balance reached past the $1 trillion level. Earlier this year, the metric landed at $1.13 trillion. And this isn’t just some high-level number that has no economic bearing. Indeed, the New York Federal Reserve reported that credit card and auto loan delinquencies are continuing to rise. This trend is particularly noticeable with younger borrwers.
Unsurprisingly, this magnitude of delinquency indicates rising financial stress. That’s not to say that investors should hit the panic button. However, certain ideas may swing higher based on this circumstance. With that in mind, below are stocks benefiting from credit card delinquencies.
Enova (ENVA)
As a financial technology (fintech) firm that provides online lending services, Enova (NYSE:ENVA) represents one of the most relevant ideas regarding stocks benefiting from credit card delinquencies. Primarily, the company is known for its payday loans, lines of credit and other financial products. Since delinquencies damage one’s credit score, Enova’s total addressable market might expand.
Indeed, the market is already a step ahead regarding this narrative. It’s off to a decent start this year and has gained robustly over the pats 52 weeks. Notably, analysts believe that by the end of this fiscal year, the company will generate revenue of $2.46 billion. If so, we’re talking about a 16.2% gain from last year’s haul of $2.12 billion.
Also, in 2025, experts anticipate sales to hit $2.72 billion. That would come out to be a 10.6% year-over-year lift. ENVA also seems undervalued. Right now, shares trade at only 7.6X forward earnings. In contrast, the sector median stat stands at 9.9X.
Covering analysts rate ENVA a consensus moderate buy with a $66 average price target. The high-side target hits $73.
OneMain Holdings (OMF)
A financial services firm, OneMain Holdings (NYSE:OMF) features a business that primarily focuses on providing personal loans. As well, the company offers insurance products to customers with limited access to traditional lenders, such as banks and credit card companies. Given the rising delinquencies, it’s almost inevitable that OneMain will see a rise (cynically) in its total addressable market.
Interestingly, analysts anticipate a strong performance for this fiscal year. By the end of the period, they believe revenue will land at just over $4 billion. That would imply a 13.3% lift from last year’s haul of $3.54 billion. Looking out to 2025, they see sales of $4.26 billion. If so, we’re talking a solid year-over-year growth rate of 6%.
Further, earnings per share should land at $5.88 in 2024 and $7.69 in 2025. For context, EPS was $5.43 in 2023. Also, OMF trades at a modest forward earnings multiple of 7.84X.
Analysts peg shares a moderate buy with a $52.31 average price target. The high-side estimate calls for $62, implying over 27% upside.
PayPal (PYPL)
A top-tier fintech player, PayPal (NASDAQ:PYPL) specializes in digital payments services. In addition, it offers a business management platform that’s perfect (in my opinion) for independent contractors. Given the burgeoning ecosystem of the gig economy, I anticipate that PYPL should perform well over the long run. So, it’s one of the intriguing names to consider for stocks benefiting from credit card delinquencies.
Specifically, PayPal’s buy now, pay later (BNPL) offering should be more appealing for customers trying to move away from plastic. Admittedly, PYPL lost about 15% of market value in the past 52 weeks, making it a riskier prospect. Still, analysts believe that revenue in fiscal 2024 should land at $31.83 billion. That’s up almost 7% from last year’s tally of $29.77 billion.
In 2025, they forecast sales to hit $34.33 billion. That would represent almost 8% growth YOY. Also, investors should note that PYPL trades at only 2.23X trailing-year sales. That’s below the sector median 3.2X.
Analysts rate shares a moderate buy with a $67.63 price target, projecting over 8% upside. However, the high-side estimate clocks in at $85.
Ollie’s Bargain Outlet (OLLI)
While fintechs that offer alternative financing solutions should represent the top ideas for stocks benefiting from credit card delinquencies, this category isn’t the only place offering potentially cynical upside. Rather, investors should also consider discount retailer Ollie’s Bargain Outlet (NASDAQ:OLLI). Featuring a closeout retail business model, demand for OLLI stock should steadily rise amid increasing interest for discounts.
In fairness, Ollie’s is down slightly for the year. However, investors should adopt a longer-term framework. Notably, analysts anticipate that by the end of fiscal 2024, sales should hit $2.1 billion. That would be over 15% higher than last year’s print of $1.83 billion. Just as well, experts believe that 2025 sales will land at $2.29 billion, representing 9.1% YOY growth.
Enticingly, EPS in 2024 and 2025 should soar to $2.83 and $3.21. Last year, per-share profitability was only $1.62. Admittedly, you’re paying a premium for the growth but the fundamentals look solid.
Analysts consider OLLI a moderate buy, pegging an $83.50 price target. Further, the high-side estimate aims for $91, which would be up almost 22%.
Kelly Services (KELYA)
If you’re looking for stocks benefitting from credit card delinquencies, a tempting idea is Kelly Services (NASDAQ:KELYA). A staffing agency, Kelly does things a bit differently than its peers, which tend to be industry specific. Instead of focusing on just accounting jobs, for example, Kelly offers myriad opportunities, including manufacturing and warehouse roles.
You got to figure that if people are running behind on their plastic bills, they might also have some income-related issues. Even if that’s not the case, a temp job could help shore up personal finances. Now, for full disclosure, analysts expect a rather horrid year for Kelly. They’re seeing revenue at only $4.05 billion, down more than 16% against last year’s print of $4.84 billion.
Is that reasonable? With the changes in the labor force, it’s understandable that some are jittery. Still, because of the delinquencies reflecting broader concerns, beggars can’t be choosers: people must work their way out of their problems.
Despite the poor projected revenue, analysts rate KELYA a moderate buy with a $28 price target. That’s a solid 16% return potential.
Sempra (SRE)
As a utility giant, I can’t say that Sempra (NYSE:SRE) is directly related to the plastic leverage problem. However, is it one of the stocks benefiting from credit card delinquencies? In a general sense, yes. Look, it provides power to communities across Southern California. If you want to play, you have to pay. That’s the reality.
Also, because it’s a literal power player, Sempra represents a critical budgetary line item. Stated differently, without basic utilities, it’s difficult to survive in the modern ecosystem. So, households have little choice but to prioritize Sempra’s utility bills.
True, analysts aren’t looking for much growth. In 2024, they anticipate sales of $16.89 billion. That’s only up 1% from last year’s tally of $16.72 billion. However, EPS should be $4.81. That’s decently above the print of $4.61 in 2023. And let’s not forget that the profitability leads to a forward dividend yield of 3.49%.
Analysts peg SRE as a strong buy with an $82.39 average price target. That implies over 16% upside potential, making it one of the stocks benefiting from credit card delinquencies.
EZCorp (EZPW)
Perhaps the most cynical name among stocks benefiting from credit card delinquencies, EZCorp (NASDAQ:EZPW) could be compelling. You’ll want to keep it on your radar. A publicly traded pawn shop operator, EZCorp provides credit services for essentially unbanked people. According to government data, we’re talking about 4.5% of U.S. households, or approximately 5.9 million people.
Now, here’s the 500 IQ move for EZPW stock. If these delinquency rates continue to rise, we can reasonably expect EZCorp to see its addressable market expand. Basically, those who are on the cusp of passable credit will see their risk profile explode (in a bad way). That means fewer opportunities with traditional banking services and an incentivization to consider pawning items for credit.
Notably, analysts forecast that fiscal 2024 sales will hit $1.15 billion. If so, that would represent a 10.1% lift from last year’s print. And 2025 could clock in revenue of $1.11 billion, implying 6.7% YOY growth.
Finally, Canaccord Genuity rates EZPW a “buy” with a $17 price target, implying over 60% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
