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CASH to Sell Commercial Insurance Business: Is the Stock a Buy?
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Pathward Financial, Inc. (CASH - Free Report) has signed an agreement to divest its commercial insurance premium finance business to AFS IBEX Financial Services, LLC (“AFS”), a subsidiary of Honor Capital Holdings, LLC. Honor Capital will be acting as a guarantor for the obligations undertaken by AFS per the agreement.
CASH’s Divestiture Details
The deal has been approved by CASH's board of directors and is anticipated to be closed by the end of September, subject to fulfillment of customary closing conditions.
Pathward Financial will receive the total consideration in cash upon the closure of the deal. The consideration comprises the final net asset value of assets to be sold, which was $617.1 million as of June 30, 2024, and a $31.2 million premium, subject to fluctuations in the loan portfolio and certain adjustments to assumed liabilities.
Financial Impact of CASH’s Deal
Revenues: This transaction will allow the reallocation of the consideration received into higher risk-adjusted return assets. This will further complement Pathward Financial’s net interest income (NII) and net interest margin (NIM).
Its NII witnessed a 13.7% compound annual growth rate (CAGR) over the four fiscal years ended 2023. Driven by this, total revenues recorded a CAGR of 13.1% in the same time frame. This was further supported by higher rates and decent loan and deposit growth.
Further, loans and deposits reflected a CAGR of 6.1% and 15%, respectively, over the same time period. The momentum continued during the first nine months of fiscal year 2024 for all the metrics.
NIM (Tax Equivalent or TE) expanded in fiscal 2023 to 6.05% from 4.85% in fiscal 2022 and 3.84% in 2021 on the back of the higher-interest rate regime. The uptrend continued in the first nine months of the fiscal year 2024.
Similarly, non-interest income reflected a 12.5% CAGR over the four years (2019-2023), with an uptrend continuing in the first nine months of fiscal year 2024.
The Zacks Consensus Estimate for revenues indicates 6.6% and 5.2% year-over-year growth for fiscal 2024 and fiscal 2025, respectively.
Balance Sheet: The abovementioned deal will support CASH in optimizing its balance sheet through strategic redeployment of the assets. This will, thereby, enhance liquidity and strengthen its capital position.
As of June 30, 2024, Pathward Financial had total cash and cash equivalents of $298.9 million, while the total debt (comprising long-term borrowings and accrued expenses and other liabilities) was $333.5 million.
As of the same date, the company’s common equity tier 1 capital ratio and total capital ratio were 12.44 and 14.33, respectively, well-capitalized above regulatory requirements.
This indicates a strong capital and liquidity position, enabling the company to reward its investors through regular dividend payouts and share buyback programs.
The company has been paying a dividend of 5 cents per share.
As of June 30, 2024, 7.4 million shares remained available under the company’s existing share repurchase program, which is set to expire on Sept. 30, 2028.
Earnings Per Share and Net Income: The deal is expected to result in roughly $17 million pre-tax gain. The impact of the agreement, excluding any gains, is anticipated to be neutral on fiscal year 2024’s net income and earnings per share (EPS).
CASH has recorded a historical EPS growth rate of 24.4% over the last three to five years, significantly outperforming the industry’s growth of 4.4%.
The Zacks Consensus Estimate for its fiscal 2024 and fiscal 2025 earnings implies 8.4% and 8.2% growth, respectively.
Should You Consider Buying CASH Stock?
This move aligns with the company’s inorganic strategic measures to drive its earnings growth through streamlining of business and redeployment of capital.
Given the company’s strategic business restructuring initiatives and organic growth, analysts seem confident in Pathward Financial’s earnings potential, which is reflected in the earnings estimates being revised 2.6% and 4.1% upward for fiscal 2024 and fiscal 2025, respectively, over the past two months.
Estimate Revision Trend
Image Source: Zacks Investment Research
Given the solid earnings potential, earnings accretive deal and analysts' optimism, CASH stock is a lucrative bet for investors now.
Further, year to date, shares of Pathward Financial have risen 26.3%, significantly outperforming the industry’s growth of 2.4%.
A couple of other top-ranked stocks from the banking space are Financial Institutions, Inc. (FISI - Free Report) and First Commonwealth Financial Corporation (FCF - Free Report) , each sporting a Zacks Rank #1.
The Zacks Consensus Estimate for FISI’s 2024 earnings has been revised 20.5% north over the past 30 days. Over the past six months, shares of the company have risen 46%.
The Zacks Consensus Estimate for FCF’s current-year earnings has been revised 2.1% upward over the past month. The company’s shares have gained 33.9% over the past six months.
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CASH to Sell Commercial Insurance Business: Is the Stock a Buy?
Pathward Financial, Inc. (CASH - Free Report) has signed an agreement to divest its commercial insurance premium finance business to AFS IBEX Financial Services, LLC (“AFS”), a subsidiary of Honor Capital Holdings, LLC. Honor Capital will be acting as a guarantor for the obligations undertaken by AFS per the agreement.
CASH’s Divestiture Details
The deal has been approved by CASH's board of directors and is anticipated to be closed by the end of September, subject to fulfillment of customary closing conditions.
Pathward Financial will receive the total consideration in cash upon the closure of the deal. The consideration comprises the final net asset value of assets to be sold, which was $617.1 million as of June 30, 2024, and a $31.2 million premium, subject to fluctuations in the loan portfolio and certain adjustments to assumed liabilities.
Financial Impact of CASH’s Deal
Revenues: This transaction will allow the reallocation of the consideration received into higher risk-adjusted return assets. This will further complement Pathward Financial’s net interest income (NII) and net interest margin (NIM).
Its NII witnessed a 13.7% compound annual growth rate (CAGR) over the four fiscal years ended 2023. Driven by this, total revenues recorded a CAGR of 13.1% in the same time frame. This was further supported by higher rates and decent loan and deposit growth.
Further, loans and deposits reflected a CAGR of 6.1% and 15%, respectively, over the same time period. The momentum continued during the first nine months of fiscal year 2024 for all the metrics.
NIM (Tax Equivalent or TE) expanded in fiscal 2023 to 6.05% from 4.85% in fiscal 2022 and 3.84% in 2021 on the back of the higher-interest rate regime. The uptrend continued in the first nine months of the fiscal year 2024.
Similarly, non-interest income reflected a 12.5% CAGR over the four years (2019-2023), with an uptrend continuing in the first nine months of fiscal year 2024.
The Zacks Consensus Estimate for revenues indicates 6.6% and 5.2% year-over-year growth for fiscal 2024 and fiscal 2025, respectively.
Balance Sheet: The abovementioned deal will support CASH in optimizing its balance sheet through strategic redeployment of the assets. This will, thereby, enhance liquidity and strengthen its capital position.
As of June 30, 2024, Pathward Financial had total cash and cash equivalents of $298.9 million, while the total debt (comprising long-term borrowings and accrued expenses and other liabilities) was $333.5 million.
As of the same date, the company’s common equity tier 1 capital ratio and total capital ratio were 12.44 and 14.33, respectively, well-capitalized above regulatory requirements.
This indicates a strong capital and liquidity position, enabling the company to reward its investors through regular dividend payouts and share buyback programs.
The company has been paying a dividend of 5 cents per share.
As of June 30, 2024, 7.4 million shares remained available under the company’s existing share repurchase program, which is set to expire on Sept. 30, 2028.
Earnings Per Share and Net Income: The deal is expected to result in roughly $17 million pre-tax gain. The impact of the agreement, excluding any gains, is anticipated to be neutral on fiscal year 2024’s net income and earnings per share (EPS).
CASH has recorded a historical EPS growth rate of 24.4% over the last three to five years, significantly outperforming the industry’s growth of 4.4%.
The Zacks Consensus Estimate for its fiscal 2024 and fiscal 2025 earnings implies 8.4% and 8.2% growth, respectively.
Should You Consider Buying CASH Stock?
This move aligns with the company’s inorganic strategic measures to drive its earnings growth through streamlining of business and redeployment of capital.
Given the company’s strategic business restructuring initiatives and organic growth, analysts seem confident in Pathward Financial’s earnings potential, which is reflected in the earnings estimates being revised 2.6% and 4.1% upward for fiscal 2024 and fiscal 2025, respectively, over the past two months.
Estimate Revision Trend
Image Source: Zacks Investment Research
Given the solid earnings potential, earnings accretive deal and analysts' optimism, CASH stock is a lucrative bet for investors now.
Further, year to date, shares of Pathward Financial have risen 26.3%, significantly outperforming the industry’s growth of 2.4%.
CASH Stock Price Movement
Image Source: Zacks Investment Research
Currently, CASH sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Stocks Worth Considering
A couple of other top-ranked stocks from the banking space are Financial Institutions, Inc. (FISI - Free Report) and First Commonwealth Financial Corporation (FCF - Free Report) , each sporting a Zacks Rank #1.
The Zacks Consensus Estimate for FISI’s 2024 earnings has been revised 20.5% north over the past 30 days. Over the past six months, shares of the company have risen 46%.
The Zacks Consensus Estimate for FCF’s current-year earnings has been revised 2.1% upward over the past month. The company’s shares have gained 33.9% over the past six months.