TSX:GSY - Post Discussion
Post by
retiredcf on Aug 01, 2023 8:35am
TD Raises Target
goeasy Ltd.
(GSY-T) C$126.94
Q2/23 Preview Event
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12-Month Target Price: C$165.00 Prior: C$160.00 |
12-Month Dividend (Est.): C$3.89 |
12-Month Total Return: 33.0% |
GSY will report Q2/23 earnings after market close on August 9, with a conference call scheduled for 11:00 a.m. the following day (dial-in link; webcast). We forecast Q2/23 adjusted EPS of $3.23, up 14% y/y; consensus: $3.13.
Impact: NEUTRAL
We forecast a relatively clean quarter from an underlying business perspective for Q2/23, with no guidance revisions (typically revised in Q2 but guidance was updated last quarter because of the upcoming regulatory change). We expect this quarter to be characterized by continued strong loan growth/demand and stable credit losses. On an annual basis, we revised our 2023 and 2024 EPS estimates lower to reflect a slightly lower revenue yield (as the business prepares for the regulatory change) and higher finance costs (rising interest rates). Our higher target price entirely reflects the roll-forward of the quarter.
GSY stock is up ~44% off its low in early May; however, remains ~12% lower than its 52-week-high (and down 40%+ from its all-time-high set in September 2021). Current valuation stands at 9.5x 2023E and 7.8x 2024E EPS, well below its past five-year average of 10.5x. We believe the upcoming regulatory change, rising funding costs, and fears of a potential recession (with subprime borrowers being disproportionately impacted) continue to act as an overhang on the stock. Our view is that as these concerns get addressed, the stock will gradually climb higher, which is reflected in the 10.0x forward multiple used in setting our target price.
For the quarter, we remain focused on the underlying business fundamentals, namely loan growth, credit, and revenue yield, which we discuss in the following pages.
TD Investment Conclusion
We like goeasy for five primary reasons: 1) the company's unique position within the Canadian financials space, in that it is a growth company exhibiting a superior ROE; 2) the significant opportunities for continued growth in its current market and new verticals and potential geographic expansion; 3) credit risk is well-managed; 4) potential for additional acquisitions to further boost growth; and 5) track record of rewarding shareholders via dividend increases. Additionally, management has a strong track record of meeting or exceeding guidance; all of our estimates fall within guidance ranges.
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