On Friday, BTIG updated its financial outlook for Velocity Financial (NYSE: NYSE:VEL), increasing the price target to $20.00 from the previous $18.00, while reaffirming a Buy rating on the company's shares in view of an anticipated improvement in the company's earnings and a more stable financial environment.
The firm's decision to raise the price target is based on the expectation that Velocity Financial will achieve higher earnings per share in the coming year, estimating a possible return of $2.00 per share.
The figure represents a significant increase from prior estimates and the consensus, which hovered around $1.50 per share. BTIG's analysis points to a robust return on tangible book value in the range of approximately 12-14%.
BTIG's positive outlook is also influenced by Velocity Financial's recent performance in securitization deals. The company has been completing new deals with leveraged returns exceeding 20%, benefiting from less volatile pricing and spreads on subordinate bonds within the capital structure.
The firm also notes that the commercial mortgage-backed securities (CMBS) securitization volume could rise if interest rates decrease. However, the strong returns currently observed may be partly due to the limited number of competitors with the necessary capital and infrastructure to provide long-term financing for single-family rental (SFR) investors.
Moreover, BTIG mentions that regional banks are currently more concentrated on managing duration risk and deposit betas, indicating a more cautious approach to capital provision.
InvestingPro Insights
As Velocity Financial (NYSE: VEL) garners a favorable outlook from BTIG with a raised price target, the company's financial health and market position are further illuminated by InvestingPro metrics and tips. With a market capitalization of $583.19M and a P/E ratio standing at an attractive 9.46, Velocity Financial demonstrates a compelling valuation relative to its earnings potential. The company's PEG ratio, which measures the price of a stock to its earnings growth rate, is notably low at 0.24, suggesting that it may be undervalued given its growth prospects.
Moreover, the company's solid financial performance is underlined by a robust revenue growth of 28.36% over the last twelve months as of Q1 2024. The gross profit margin during the same period was an impressive 76.3%, reflecting efficient operations and strong profitability. These figures are complemented by two InvestingPro Tips indicating that analysts have revised their earnings upwards for the upcoming period and that the company's liquid assets exceed its short-term obligations, portraying a stable financial stance.
Investors may also find encouragement in the fact that analysts predict Velocity Financial will be profitable this year, as the company has already been profitable over the last twelve months. Notably, Velocity Financial does not pay a dividend, which may appeal to investors looking for companies that reinvest earnings back into growth opportunities. For those interested in a deeper dive, there are additional InvestingPro Tips available, which can be explored for more detailed investment strategies and insights on Velocity Financial.
The combination of favorable analyst revisions, strong earnings growth potential, and a solid financial foundation positions Velocity Financial as a company worth watching in the investment community. Those seeking further guidance can find more tips on InvestingPro's dedicated page for Velocity Financial.
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