On Thursday, B.Riley raised its price target on shares of Newtek Business Services (NASDAQ:NEWT) to $14.00, up from the previous target of $13.00. The adjustment follows a thorough analysis of the company's third-quarter report, recent developments from its NewtekOne platform, and discussions with NEWT's management.
The firm's analyst cited an increase in the estimated earnings per share (EPS) for 2025, from $1.92 to $2.12, which is in line with the consensus estimate of $2.13 and within the company's own guidance range of $2.00 to $2.25. Despite the improved EPS forecast, the analyst has chosen to maintain a Neutral rating on the stock.
In the report, B.Riley noted that Newtek's shares trade at a significant discount compared to its peers, with price-to-tangible book (P/TB) and price-to-2025 estimated earnings (P/2025E) ratios standing at 133% and 6.0 times, respectively. These figures are considerably lower than the median ratios of 155% and 12.1 times seen amongst its competitors.
The discounted valuation is attributed to several factors, including perceptions of higher risk in NEWT's lending focus, its unconventional operating model devoid of branches or commercial bankers, and a lack of investor patience.
However, the analyst acknowledged Newtek's distinctive business approach and suggested that its stock might eventually attract a premium valuation if the company continues to deliver profitability that outpaces its peers, successfully builds a core deposit franchise, and enhances its communication with investors.
B.Riley's updated price target reflects a more optimistic outlook for Newtek's financial performance and potential growth in the coming year, despite the current market discount.
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