In this piece, I evaluated two financial stocks, Marathon Digital Holdings, Inc. (MARA) and Everi Holdings Inc. (EVRI), to determine a better investment. Based on a fundamental comparison of these stocks, EVRI appears to have better upside potential than MARA for reasons explained throughout this article.
Financial stocks usually perform well in a rising interest rate environment. The Federal Reserve has raised interest rates ten times since last year. However, the Central Bank held rates steady for the first time since January 2022, maintaining the benchmark interest rate between 5% and 5.25%.
However, Fed officials raised their interest rate forecasts for this year; signaling rates could reach as high as 5.6%, implying two additional rate hikes this year. Further rate hikes could benefit financial companies as it helps them raise their profit margins.
Financial services companies are leveraging technology to provide innovative and convenient financial services like online banking, wealth management, digital payments, consumer credit, etc. With technology becoming a significant part of our lives, the demand for digital financial services will likely rise.
The financial services market is expected to grow at a CAGR of 7.4% to $33.31 trillion by 2026. Post 2026, the market is expected to grow at a CAGR of 6.3% to reach $45.15 trillion by 2031.
MARA’s loss per share was $0.04 narrower than the analyst estimates, while its revenue beat the consensus estimate by 4.8%. On the other hand, EVRI’s EPS and revenue beat the consensus estimates by 38.9% and 5.2%, respectively.
MARA’s Chairman and CEO Fred Thiel said, “After weathering a tumultuous 2022 that tested the resilience of our entire industry, this year is off to a strong start as we grew our hash rate, reduced our cost to mine, and improved our balance sheet during the first quarter. With more hash rate coming online in the months ahead, Marathon remains on track to reach our 23 exahash goal near the middle of this year.”
“We remain optimistic that we can achieve our primary growth targets and establish Marathon as one of the largest, most energy efficient, and most technologically advanced Bitcoin mining operations globally,” he added.
EVRI’s CEO Randy Taylor said, “Overall, our first quarter results continued to demonstrate our consistent growth profile, as we further execute on our organic growth initiatives and benefit from several acquisitions we completed over the last twelve months.”
For fiscal 2023, EVRI expects its net income to be between $92 million and $100 million, while its adjusted EPS is expected to be between $1.58 and $1.66. In addition, its adjusted EBITDA is projected to come between $384 million and $396 million. Also, its free cash flow will be between $150 million and $160 million.
When it comes to price performance, MARA is the clear winner. MARA’s stock has gained 105.3% in price over the past six months compared to EVRI’s 0.5% decline. In addition, MARA’s stock has gained 39.6% over the past year, compared to EVRI’s 8.3% decline.
However, here are the reasons I think EVRI could perform better in the near term:
Recent Financial Results
MARA’s total revenues for the first quarter ended March 31, 2023, declined 1.1% year-over-year to $51.13 million. Its operating loss narrowed 73.5% year-over-year to $3.86 million. The company’s net loss narrowed 43.7% year-over-year to $7.24 million. Its loss per share narrowed 58.3% year-over-year to $0.05.
EVRI’s total revenues for the first quarter ended March 31, 2023, increased 14.2% year-over-year to $200.47 million. Its net cash provided by operating activities rose 501.2% year-over-year to $31.71 million. The company’s adjusted EBITDA increased 3.2% year-over-year to $92.48 million. Its adjusted EPS came in at $0.43, representing an increase of 2.4% year-over-year.
Expected Financial Performance
MARA’s EPS for fiscal 2023 and 2024 is expected to increase 108.7% and 85.2% year-over-year to $0.27 and $0.50. Its fiscal 2023 and 2024 revenue is expected to increase 267.4% and 38% year-over-year to $432.57 million and $596.81 million.
Analysts expect EVRI’s EPS for fiscal 2023 to decline 12.2% year-over-year to $1.09. Its EPS for fiscal 2024 is expected to increase 13.1% year-over-year to $1.23. Its fiscal 2023 and 2024 revenue is expected to increase 8% and 4.8% year-over-year to $845.15 million and $885.53 million.
Profitability
EVRI’s trailing-12-month revenue is 6.9 times what MARA generates. EVRI is more profitable, with an EBITDA margin and Return on Equity of 43.74% and 50.13%, compared to MARA’s negative 231.11% and 103.20%, respectively. Also, EVRI’s asset turnover of 0.48x compares to MARA’s 0.08x.
Valuation
In terms of forward EV/Sales, EVRI is currently trading at 2.42x, 54.3% lower than MARA’s 5.29x. EVRI’s forward EV/EBITDA ratio of 5.24x is 57.3% lower than MARA’s 12.28x.
Thus, EVRI is relatively more affordable.
POWR Ratings
MARA has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. On the other hand, EVRI has an overall rating of B, translating to a Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MARA has an F grade for Value, in sync with its stretched valuation. On the other hand, EVRI’s discounted valuation justifies its B grade for Value.
MARA has a D grade for Quality, consistent with its poor profitability. On the other hand, EVRI has an A grade for Quality, in sync with the company’s high profitability.
Of the 101 stocks in the Financial Services (Enterprise) industry, MARA is ranked #97, while EVRI is ranked #3 in the same industry.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Momentum, Stability, and Sentiment. Click here to view MARA’s ratings. Get all the ratings of EVRI here.
The Winner
With the Fed indicating two more rate hikes by the end of this year, the financial services industry could benefit. Moreover, with technological improvements and the growing adoption of digital financial services, the financial services industry is well-positioned for growth.
EVRI reported a strong financial performance during the first quarter. Despite the uncertain macroeconomic conditions, it expects its adjusted EPS, net income, and adjusted EBITDA to grow strongly in fiscal 2023. On the other hand, profitability continues to elude MARA.
Although the company remains confident of achieving its growth targets, it could be wise to avoid MARA due to its exposure to risky and volatile assets like cryptocurrency. Therefore, EVRI could be a better choice now.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Financial Services (Enterprise) industry here.
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MARA shares were trading at $9.27 per share on Thursday morning, down $0.42 (-4.33%). Year-to-date, MARA has gained 171.05%, versus a 15.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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