3 Financial Stocks to Watch Closely for Momentum

After showing remarkable resilience over the last two years, the financial services industry is expected to witness continued growth, thanks to solid corporate and consumer spending on financial services and the growing adoption of digital technology. Moreover, financial institutions generally benefit in a rising interest rate environment as it helps them boost their profit margins.

Amid this backdrop, investors could watch financial stocks First American Financial Corporation (FAF), Everi Holdings Inc. (EVRI), and Digital World Acquisition Corp. (DWAC) witnessing solid momentum.

In recent years, the financial services industry has demonstrated its ability to navigate unprecedented levels of macroeconomic uncertainty successfully. From real estate to insurance to investment management to banking and capital markets, financial services organizations are well-poised for continued resilience and growth, driven by sustained demand for financial services.

According to a report by The Business Research Company, the global financial services market is expected to grow to $37.48 trillion by 2027 at a CAGR of 7.5%.

Moreover, financial services companies are expected to benefit from the current high-interest rate environment. Last month, the central bank raised interest rates by 0.25%, lifting the fed funds rate to a target range of 5.25%-5.5%, the highest level in 22 years, in its fight against persistent inflation.

While price increases have eased over the past year, dropping the inflation rate from 9% in mid-2022 to 3.2% in July this year, it is still well above the Fed’s target of 2%. Further, Fed minutes released last Wednesday from the most recent meeting showed that Fed officials expressed concerns about the pace of inflation and said more rate hikes could be required.

Furthermore, digital transformation plays a significant role in reshaping the financial services sector by bringing numerous growth opportunities. Adopting digital technology is pivotal for organizations to remain competitive, meet changing customer expectations, and drive operational efficiency.

For instance, with digital channels, customers can access their accounts, make transactions, and seek help anytime, anywhere, enhancing customer experience. By adopting advanced technologies like artificial intelligence (AI), machine learning (ML), and robotic process automation (RPA), financial institutions can automate manual processes, streamline operations, and lower costs.

In addition, digital integration aids in data-driven decision-making. Financial institutions leverage advanced analytics and data-driven insights to make informed decisions, identify market trends, develop personalized offerings, and manage risks effectively.

Financial services applications have become focused since financial organizations have introduced digital solutions and innovations like person-to-person payment, online transfers, alerts, and other services. As per a report by Mordor Intelligence, the financial services application market is projected to grow at a CAGR of 7.9% by 2027.

Given the high-rate environment and the industry’s long-term prospects, investors could consider watching quality financial services stocks FAF, EVRI, and DWAC with surprising momentum.

Let’s take a closer look at the fundamentals of these stocks:

First American Financial Corporation (FAF)

FAF is a premier provider of title, settlement, and risk solutions for real estate transactions. It operates through Title Insurance and Services and Specialty Insurance segments. The company issues title insurance policies on residential and commercial property and offers related products and services. It also provides home warranty products.

On August 22, FAF’s Board of Directors declared a quarterly cash dividend of $0.53 per common share, a 2% increase over the previous level of $0.52 per common share. The cash dividend is payable on September 15, 2023, to shareholders of record as of September 8, 2023.

Ken Degiorgio, CEO of FAF, said, “Our decision to increase the cash dividend signals our continued confidence in the outlook for our business and our long-standing commitment to return capital to our shareholders.”

FAF pays an annual dividend of $2.12, translating to a yield of 3.53% at the current share price. Its four-year average dividend yield is 3.28%. Its dividend payouts have grown at a CAGR of 6.5% over the past three years. The company has raised its dividends for 12 consecutive years.

In terms of forward EV/EBITDA, FAF’s 10.60x is 12.5% lower than the 12.12x industry average. Likewise, the stock’s forward Price/Sales of 0.98x is 57.5% lower than the 2.30x industry average.

FAF’s Title Insurance and Services segment investment income grew 105% year-over-year to $142 million for the second quarter that ended June 30, 2023. Its income before income taxes was $178.10 million, up 26% from the prior year’s quarter. The company’s net income grew 23.8% from the year-ago value to $136.40 million.

Furthermore, FAF’s net income per share attributable to stockholders rose 31.7% year-over-year to $1.33. As of June 30, 2023, the company’s cash and cash equivalents came in at $2.25 billion, compared to $1.22 billion as of December 31, 2022.

Analysts expect FAF’s revenue and EPS for the fiscal year (ending December 2024) to increase 5.1% and 23% year-over-year to $6.66 billion and $5.41, respectively. Moreover, the company surpassed the EPS estimates in three of the trailing four quarters.

Over the past six months, FAF’s stock has gained 6.4% and 12.4% year-to-date to close the last trading session at $60.11. Moreover, the stock is currently trading above its 50-day and 200-day trading averages of $59.33 and $56.74, respectively, indicating an uptrend.

FAF’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

FAF has a grade of B for Momentum and Growth. In the Financial Services (Enterprise) industry, it is ranked #18 out of 100 stocks.

Beyond what we stated above, we also have FAF’s ratings for Sentiment, Stability, Value, and Quality. Get all FAF ratings here.

Everi Holdings Inc. (EVRI)

EVRI provides entertainment and technology solutions to the casino, interactive, and gaming industries. It develops and supplies entertaining game content, gaming machines, and gaming systems for land-based and iGaming operators internationally. The company operates through two segments: Games and Financial Technology Solutions.

On June 30, EVRI’s Venuetize platform was selected by Inter Miami CF as the foundation for their fan engagement mobile strategy, enabling users to stay up-to-date with the latest news, scores, fixtures, ability to shop for exclusive merchandise, and more. This deal is expected to drive the company’s growth.

On May 31, EVRI launched the Muscogee Creek Mobile App at all nine Muscogee (Creek) Nation Casinos in Oklahoma. The Everi Mobile App is designed for optimized player engagement, giving casino guests the power of self-service and featuring the operator’s branding. The new launch should boost EVRI’s expansion.

Also, on April 11, EVRI entered into a purchase agreement to acquire certain assets of VKGS LLC (Video King), a privately owned leading provider of integrated electronic bingo gaming tablets, video gaming content, instant win games, and systems for cash consideration of nearly $59 million.

This acquisition would provide EVRI with complementary assets and an established customer base, enabling additional growth in the company’s Games segment.

EVRI’s trailing-12-month gross profit margin of 78.77% is 123% higher than the industry average of 35.32%. Similarly, the stock’s trailing-12-month EBITDA margin of 43.36% is favorably higher than the industry average of 10.87%.

EVRI’s forward non-GAAP P/E of 11.85x is 19.5% lower than the 14.72x industry average. And the stock’s forward EV/EBITDA of 5.19x is 45.7% lower than the 9.55x industry average. Also, its forward Price/Cash Flow multiple of 4.61 is 44.3% lower than the industry average of 8.28.

For the second quarter ended June 30, 2023, EVRI’s revenues increased 5.8% year-over-year to $208.70 million, while its FinTech revenues came in at $95.60 million, up 12.6% from the prior year’s quarter. Its adjusted EBITDA rose 1.8% from the year-ago value to $96.10 million. As of June 30, 2023, the company’s cash and cash equivalents stood at $210.62 million.

Street expects EVRI’s revenue for the fiscal year (ending December 2023) to increase 6.2% year-over-year to $830.88 million. For the fiscal year 2024, the consensus revenue and EPS estimates of $873.87 million and $1.21 indicate an improvement of 5.2% and 11.4% year-over-year, respectively.

In addition, the company topped the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.

Shares of EVRI have declined 4.6% year-to-date to close the last trading session at $13.69.

EVRI’s POWR Ratings reflect this robust outlook. EVRI has an overall rating of B, which translates to a Buy in our proprietary rating system.

EVRI has a B grade for Momentum, Quality, and Value. It is ranked #5 out of 100 stocks in the Financial Services (Enterprise) industry.

Click here to see the other ratings of EVRI for Growth, Sentiment, and Stability.

Digital World Acquisition Corp. (DWAC)

DWAC is a special purpose acquisition company (SPAC) that focuses on effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or related business combination with one or more businesses. The company intends to identify tech-focused companies in the SaaS and technology, or fintech and financial services sector.

On August 9, DWAC and Trump Media & Technology Group Corp. (TMTG), which operates the Truth Social platform, agreed to an amendment to their previously announced Agreement and Plan of Merger (the Merger Agreement).

The Merger Agreement is expected to enable TMTG and DWAC to progress toward their shared objective of completing a business combination in the coming months. Through this strategic merger, TMTG’s Truth Social, with a strong position in the marketplace, would bring a unique value perspective to DWAC’s shareholders.

As of December 31, 2022, DWAC’s current assets stood at $169 thousand. In addition, the company’s total assets were $300.50 million, compared to $293.99 million as of December 31, 2021.

DWAC’s shares have gained 3.7% over the past three months to close the last trading session at $13.93.

DWAC’s POWR Ratings reflect its solid prospects. The stock has a grade B for Momentum. However, it is ranked last among 100 stocks in the same industry.

In addition to the POWR Ratings I’ve just highlighted, you can see DWAC’s ratings for Growth, Stability, Value, Sentiment, and Quality here.

What To Do Next?

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FAF shares were unchanged in premarket trading Friday. Year-to-date, FAF has gained 17.03%, versus a 15.10% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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