(CORRECTION AMENDED) Analysts at Compass Point LLC initiated coverage of three auto finance companies July 8. The companies are Santander Consumer USA, Consumer Portfolio Services, and Credit Acceptance Corp. Analyst Jason Stewart gave Santander at a “neutral” rating and a $23.00 price target. He rated Credit Acceptance Corp, “sell,” with a price target of $104. Compass assigned Consumer Portfolio Services a “buy” rating and a $10 price target.
The reports open a revealing window into each company’s health.
In its report, Compass said Santander is transitioning into a diversified consumer lender via new captive finance lending relationships and an unsecured consumer lending business. The diversification of revenue should better insulate the income statement from cyclicality, increase recurring fee income and add operational leverage to the business.
Meanwhile, Stewart wrote that shares of Consumer Portfolio Services trade at a substantial discount to peers and the market is overly discounting the future benefits of selectively pricing credit, the opportunity to reduce funding costs and enhance operating leverage. While CPSS remains more levered than peers, the company has made substantial progress de-leveraging the balance sheet and continues to refinance legacy higher-cost debt into lower cost securitizations.
Of Credit Acceptance Corp., Stewart wrote heightened regulatory risks, an increasingly competitive origination environment and lower relative credit standards negatively skew the risk versus reward in shares. While the company has historically managed credit well on a through cycle basis and our base expectation is that auto credit is normalizing rather than turning secularly worse, CACC has the lowest credit standards of all of the publicly traded auto finance companies.
(In an earlier version of this story, Auto Finance News incorrectly reported that Compass Point rated Consumer Portfolio Services a “Sell.” Rather, Compass Point rated CPS a “Buy.”)
