Automation And Partnerships Pave Way For Future Success

Key Takeaways

• Automation and improved credit evaluation processes could drive operational efficiency and earnings stability, enhancing revenue and profitability.
  
• Strategic expansions and partnerships aim to attract high-quality customers, boost revenue growth, and increase profitability and cash flow in the future.
  
• Challenges in consumer credit behavior, macroeconomic factors, and execution risks in expansion and automation could impact OppFi's revenue, margins, and shareholder value.

Catalysts

A tech-enabled specialty finance platform that broadens the reach of community banks to extend credit access to everyday Americans.

• Continued automation and improvements in auto loan approvals are expected to enhance operational efficiency, potentially increasing revenue and net margins by reducing costs and improving customer satisfaction.
  
• Implementation of Model 6 and improved credit evaluation processes could lead to better credit quality and lower net charge-off rates, enhancing net margins and earnings stability.
  
• Expansion into additional marketing channels and partnerships aims to attract high-quality customers, potentially boosting revenue growth and enhancing profit margins.
  
• The successful strategic initiative in the small business financing space with Bitty could provide additional revenue streams, increasing overall profitability and cash flow in 2025.
  
• Strong balance sheet management, including debt reduction and expanded funding capacity, supports strategic growth initiatives and could improve net income and shareholder value.

OppFi Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OppFi's revenue will grow by 45.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.6% today to 21.3% in 3 years time.
• Analysts expect earnings to reach $181.9 million (and earnings per share of $2.85) by about April 2028, up from $7.3 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 9.4x on those 2028 earnings, down from 28.2x today. This future PE is lower than the current PE for the US Consumer Finance industry at 9.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.67%, as per the Simply Wall St company report.

OppFi Future Earnings Per Share Growth

Risks

• OppFi’s reliance on a continuous improvement model, particularly Model 6, to maintain strong credit quality could face challenges if consumer credit behavior changes unpredictably, thereby impacting revenue and credit performance.
  
• Macroeconomic uncertainties, including inflation and potential impacts of tariffs on employment, could introduce volatility in consumer repayments and therefore negatively affect net margins and earnings.
  
• The ambitious goal to increase automation and operational efficiency may encounter diminishing returns, potentially leading to slower future cost reductions and impacting net margins.
  
• The company's expansion plans, including in marketing spending and testing new channels, carry execution risks. If these initiatives do not yield high-quality customers as anticipated, it could lead to increased costs and reduced earnings.
  
• While maintaining a strong balance sheet and reducing debt, OppFi’s capital allocation strategy, including potential inorganically driven growth through acquisitions, might not yield the expected high ROI, thus affecting future earnings and shareholder value.

Valuation

• The analysts have a consensus price target of $13.0 for OppFi based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $852.5 million, earnings will come to $181.9 million, and it would be trading on a PE ratio of 9.4x, assuming you use a discount rate of 7.7%.
• Given the current share price of $8.44, the analyst price target of $13.0 is 35.1% 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.