Investments In Machine Learning And Risk Management Will Drive Future Efficiency

Key Takeaways

• Strong credit performance and unit economics improvements could lead to higher net margins and earnings growth.
  
• Strategic share repurchases and Fed rate reductions may enhance EPS and contribute to increased shareholder value.
  
• Reliance on alternative lending and investments in expansion may expose Enova to regulatory challenges and heightened credit risks, impacting margins and bottom-line earnings.

Catalysts

A technology and analytics company, provides online financial services in the United States, Brazil, and internationally.

• Continued reduction in net charge-offs and strong credit metrics indicate improved unit economics and credit performance, potentially leading to higher net margins.
  
• Anticipated rate reductions by the Federal Reserve are expected to decrease funding costs and act as a tailwind for increasing net income and EPS.
  
• Growth in small business originations and revenue, driven by consumer confidence and a shift towards alternative lenders, suggests potential for increased revenue and earnings.
  
• Strategic share repurchase initiatives, backed by strong liquidity and balance sheet capacity, are likely to enhance EPS and contribute to shareholder value.
  
• Continued investment in machine learning algorithms and risk management capabilities is expected to drive operational efficiency and margin improvements, thereby impacting future earnings growth positively.

Enova International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enova International's revenue will grow by 57.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 15.4% today to 7.9% in 3 years time.
• Analysts expect earnings to reach $363.4 million (and earnings per share of $14.05) by about December 2027, up from $180.5 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2027 earnings, down from 14.3x today. This future PE is lower than the current PE for the US Consumer Finance industry at 11.5x.
• Analysts expect the number of shares outstanding to decline by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.59%, as per the Simply Wall St company report.

Enova International Future Earnings Per Share Growth

Risks

• The company's reliance on alternative lending and non-traditional financial services, which small businesses increasingly prefer, may expose Enova to regulatory challenges that could impact revenue and net margins.
  
• Enova’s provision of consumer loans to demographics underserved by mainstream financial institutions might involve higher credit risks, potentially affecting net revenue and charge-offs.
  
• Changes in the macroeconomic environment, albeit viewed as conducive by Enova currently, could lead to increased delinquencies, impacting future earnings and net margins.
  
• Despite growth in originations, higher delinquency rates on consumer loans, driven by a specific product mix, could negatively affect credit quality and net revenue margins.
  
• Internal factors, like investing in expansion and marketing, could pressure operating margins if the competitive landscape intensifies, impacting bottom-line earnings.

Valuation

• The analysts have a consensus price target of $108.0 for Enova International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $130.0, and the most bearish reporting a price target of just $83.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.6 billion, earnings will come to $363.4 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 9.6%.
• Given the current share price of $98.64, the analyst's price target of $108.0 is 8.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.