Online Analytics And Diversified Credit Will Ignite Future Expansion

Key Takeaways

• Enova's online business model and diverse credit products enable scalable growth and resilience, supporting steady revenue and earnings through market volatility.
  
• Strategic customer acquisition and efficient cost management bolster long-term revenue growth and net margins, enhancing their earnings potential.
  
• Economic uncertainties and reliance on a low cost of funds pose risks to Enova's revenue, margins, and future growth due to potential impact on SMB loans and credit performance.

Catalysts

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

• Enova International's online-only business model and focus on proprietary analytics allow for consistent and scalable growth in originations, which is expected to drive future revenue, given the 26% year-over-year increase in originations reported for the quarter.
  
• The diversified product offerings across small business and consumer credit, which provide resilience and flexibility against market volatility, are anticipated to support steady revenue growth and stable credit performance, impacting both net margins and earnings positively.
  
• The company's strategic focus on attracting new customers, which often transition into repeat customers with strong lifetime economics, is likely to bolster long-term revenue and earnings growth, with an expected improvement in net margins as customer relationships mature.
  
• Enova’s robust liquidity position, with $1.1 billion in liquidity, supports ongoing investments in business growth initiatives and offers flexibility for share buybacks, potentially enhancing earnings per share (EPS).
  
• The decline in funding costs and efficient marketing spending, which has already contributed to a 56% increase in adjusted EPS, suggest an ability to maintain or improve net margins even as revenue growth continues, strengthening overall earnings potential.

Enova International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enova International's revenue will grow by 49.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 16.9% today to 9.0% in 3 years time.
• Analysts expect earnings to reach $375.6 million (and earnings per share of $14.27) by about April 2028, up from $209.4 million today. The analysts are largely in agreement about this estimate.
• 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 2028 earnings, down from 12.2x today. This future PE is lower than the current PE for the US Consumer Finance industry at 10.0x.
• Analysts expect the number of shares outstanding to decline by 4.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.73%, as per the Simply Wall St company report.

Enova International Future Earnings Per Share Growth

Risks

• The potential impact of tariffs and inflation on small businesses remains unclear, which poses a risk to Enova's SMB loan portfolio performance and could affect future revenues.
  
• A significant portion of Enova's consumer base consists of new customers, who tend to have higher initial charge-off rates, potentially impacting net margins if credit performance worsens.
  
• The risk of an economic recession or downturn could lower consumer spending and creditworthiness, affecting Enova’s revenue and earnings, despite confidence in their non-prime customer base's recession resilience.
  
• Enova's reliance on a low cost of funds to maintain profitability could be threatened by market conditions affecting interest rates, potentially squeezing net margins.
  
• Market volatility and economic uncertainties may affect future originations and demand across product offerings, potentially impacting projected revenue growth.

Valuation

• The analysts have a consensus price target of $126.857 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 $138.0, and the most bearish reporting a price target of just $109.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.2 billion, earnings will come to $375.6 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 9.7%.
  
• Given the current share price of $99.55, the analyst price target of $126.86 is 21.5% higher.
  
• 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.