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Santander Consumer (SC) Stock Up 2.3% on Q4 Earnings Beat

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Shares of Santander Consumer USA Holdings Inc. (SC - Free Report) rallied 2.3% in response to fourth quarter and 2020 results. Quarterly earnings of $1.70 per share easily outpaced the Zacks Consensus Estimate of $1.13. Also, the bottom line was significantly above 43 cents earned in the year-ago quarter.

Results benefited from higher revenues on the back of increased originations. Also, credit costs witnessed a fall during the quarter. However, rise in operating expenses was an undermining factor.

Net income was $521.5 million, up from $146.1 million in the prior-year quarter.

In 2020, earnings per share of $2.87 beat the consensus estimate of $2.31 and was marginally up year over year. Net income declined 8.4% to $910.9 million.

Revenues & Expenses Rise

Total quarterly revenues were $1.32 billion, up 21% year over year.

In 2020, total revenues grew 2.4% to $4.83 billion.

Net finance and other interest income totaled $1.34 billion, up 15.6% year over year.

Total other loss was $15.4 million compared with $64 million a year ago.

Operating expenses increased 2.9% to $318.3 million, mainly due to higher compensation and benefits costs.

As of Dec 31, 2020, net finance receivables, loans and leases were $27 billion, down 2.7% year over year. Total originations during the reported quarter of $6.4 billion grew 5.4%.

Credit Quality Improves

Provision for credit losses plunged 53.4% year over year to $254.1 million.

Further, the total net charge-offs ratio was 3.5%, down from 8.2% in the prior-year quarter.  Also, end-of-period delinquency ratio on loans held for investment was 3.2%, down from 5.1%.

Solid Capital & Profitability Ratios

As of Dec 31, 2020, Common Equity Tier 1 capital ratio was 14.6% compared with 14.8% on Dec 31, 2019.

Return on average assets was 4.3% as of Dec 31, 2020, up from 1.2% in the prior-year period. Further, return on average equity was 38.8%, up from 8.0%.

Our View

Santander Consumer is well positioned for revenue growth, as the economy gradually recovers and demand for consumer loans improves. However, elevated expenses pose a major headwind.

Currently, Santander Consumer carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Performance of Other Consumer Lenders

Ally Financial’s (ALLY - Free Report) fourth-quarter 2020 adjusted earnings of $1.60 per share handily surpassed the Zacks Consensus Estimate of $1.05. Also, the bottom line surged 68.4% from the year-ago figure.

Sallie Mae’s (SLM - Free Report) fourth-quarter 2020 earnings per share of $1.15 (on core basis) handily surpassed the Zacks Consensus Estimate of 33 cents. Also, the bottom line compared favorably with 33 cents reported in the prior-year quarter.

Navient Corporation (NAVI - Free Report) reported fourth-quarter 2020 core earnings per share of 88 cents that surpassed the Zacks Consensus Estimate of 81 cents. Also, the bottom line was above the year-ago quarter figure of 69 cents.

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