Medallion has some difficulties in 2020. Is it a strong-buy?

Medallion has some difficulties in 2020. Is it a strong-buy?

The stock market has been rallying for some time now, with shares gaining after their plummet down during the coronavirus pandemic. Some sectors were faster to recover, but investors fear that the rebound may not last for long. Still, there are some companies which manage to stay afloat despite the current difficulties.

Medallion is a speciality finance company based in New York City. Its name reflects the main part of the company’s portfolio: taxi medallions. They offer these permits to operate a taxi cab, which are available in limited numbers. Cab operators will pay top dollar, and they’ll even secure large loans, to procure them. Along with medallion-backed loans, Medallion also offers loans for consumers, light industry, and small businesses.

The company reported its first-quarter results on April 30, showing deep losses. In addition, EPS came in at a 56-cent per-share net loss, much worse than the forecasted 12-cent loss. Revenue for the quarter tumbled down as well, reporting $19.6 million. This was 33% below forecasts and 32% lower year-over-year.

However, such a drawback was caused by the coronavirus pandemic. Medallion’s portfolio has large numbers of taxi medallions, as well as consumer loans. And lockdowns hit both those segments hard. Considering that NYC taxi traffic is far down, and unemployment is skyrocketing, people have a hard time making their loan payments.

What do analysts think about this stock? 

Scott Buck, Riley FBR analyst, thinks that the current difficult time is an opportunity for Medallion. According to him, the company is in the position to make a meaningful write-off for its medallion loans, and turn toward more profitable endeavours.

He analysed the stock’s prospects and reduced his estimates for 2020 and 2021, due to the more challenging environment for consumer loan demand, as well as more challenging credit. Experts are modelling the full-year 2020 EPS at $0.26, lowered from $1.05.

However, the decline is driven almost entirely from higher provisioning. Buck sees that as a positive thing long-term, as it allows management and investors to move their attention on the growing, as well as profitable, consumer lending segment.

Despite current difficulties, Medallion Financial has kept a strong-buy status. Buck’s $7 price target suggests an impressive 220% upside potential, while the $6.83 average price target implies 189% growth in 12-months.

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