Medallion Financial Corp. (MFIN, Financial) is a commercial finance company that originates and services loans in various industries in the U.S. It operates through four segments: Recreation Lending, Home Improvement Lending, Commercial Lending and Medallion Lending. The company is active in automobile loans, real estate lending, equipment leasing, business acquisition loans, personal loans and credit card refinancing loans, among other types of commercial and consumer loans. With the second-quarter results having just been released on July 24, there are several positive things to monitor as this financial services company has an optimistic outlook.
Key points of second-quarter results
For the three months ended June 30, Medallion Financial reported GAAP earnings of 62 cents per share, topping estimates by 26 cents, on revenue of $46.69 million, which beat expectations by $2.39 million.
Net income was $14.2 million, compared to $13.3 million in the prior-year quarter, while net interest income grew 20% to $46.7 million. Other positive news was that loan originations of $346 million were up from $305 million a year ago and total assets grew 19% to an all-time high of $2.5 billion. The company also declared and paid a quarterly cash dividend of 8 cents per share.
In terms of its individual business segments, recreation loans grew 21% year over year to $1.3 billion and home improvement loans increased 38% to $728.5 million, while commercial loans fell to $92.6 million from $96.9 million a year ago. Further, total net taxi Medallion assets declined to $17.7 million, representing a 43% reduction compared to last year.
In a statment, President Andrew Murstein said he was "pleased" with the results.
"As we have been saying since interest rates started to increase, we believe we will be able to manage through the current interest rate environment by growing our loan portfolio and passing along a portion of those increases," he said. "Our consumer teams originated over $300 million of loans in the quarter, which is a record second quarter for us, and led to our loan portfolio exceeding $2 billion for the first time in our history. We had another strong quarter of cash collections related to our medallion assets, with over $10 million collected. This helped us deliver one of our strongest quarters ever."
Business advantages
The company has several business advantages, namely a focus on niche markets, a strong track record, a diversified product offering and a solid capital base.
Medallion Financial focuses on lending to small businesses in specific industries, such as the taxi cab industry and the health care industry. This focus allows the company to develop deep expertise in these areas and to provide tailored financing solutions to its customers. The finance company has been in business for over 30 years and has a strong track record of profitability. The company has a well-established reputation in the financial services industry and is a trusted lender to small businesses and consumers.
The company offers a wide range of financing products, including term loans, revolving lines of credit and equipment financing. This allows it to meet the needs of a variety of customers, from start-ups to established businesses. Its strong capital base, as indicated by the recent assets growth, allows the company to provide financing to businesses and consumers with less risk. This strong capital base also gives Medallion the flexibility to grow its business and meet the changing needs of its customers.
These business advantages have helped Medallion to become a leading provider of financing to small businesses and consumers. Further, it benefits from its experienced and knowledgeable management team, a strong customer focus and a commitment to innovation
As such, I believe the successful and respected financial services company is well-positioned to continue growing its business in the years to come.
Valuation
Shares of Medallion Financial trade with a price-earnings ratio of 3.93, a price-sales ratio of 1.17 and a price-book ratio of 0.63.
The GF Value of $8.93, which is based on historical ratios, past financial performance and analysts' future earnings projections, indicate the stock is fairly valued currently. The stock closed at $8.25 on July 24.
But the discounted cash flow valuation tells another story. The DCF model shows that the stock is undervalued with a fair value of $26.22, having a large margin of safety of around 66%.
This is a very attractive valuation, so the fact that the forward dividend yield is now nearly 4% makes me highly optimistic about its potential future gains.
Boosted by several positive factors, as well as solid second-quarter results, this stock in the credit services industry is quite appealing currently.
