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Here's Why Santander Consumer USA Stock Gained 10%


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Shares of Santander Consumer USA Holdings Inc. (SC - Snapshot Report) rose nearly 10% following the announcement that it will be restating its financial statements for the last three years. Also, the company announced selected preliminary and unaudited second-quarter financial results, for the three month-period ending Jun 30, 2016.  

Preliminary & Unaudited Second-Quarter 2016 Results

Santander Consumer USA earned a net income of $283 million or 78 cents per share during the second quarter of 2016.

The company reported a net finance and other interest income of $1.2 billion during the quarter. Further, provisions for credit losses amounted to $511 million.

Total originations amounted to $5.4 billion during the reported quarter. Also, the average assets managed by the company totaled $53.2 billion.          

Why the Delay & Restatement of Financial Statements?

The delay in the announcement of Santander Consumer USA’s second-quarter 2016 results was due to the persistent discussions in the company related to its discount accretion and credit loss allowance methodologies.

These considerations, along with Santander Consumer USA’s methodology for accreting dealer discounts, subvention payments from manufacturers and capitalized origination costs, and the discount rate used in determining the impairment for loans accounted for as troubled debt restructurings further led to the restatement of financial results.

Santander Consumer USA plans to restate its financial statements and associated disclosure for the full year of 2013, 2014 and 2015 and the quarters in 2014 and 2015, along with the first-quarter of 2016. The Audit Committee of the company’s Board of Directors has further stated that these financial statements should no longer be relied upon.

Also, Santander Consumer USA anticipates reporting the existence of additional, previously unreported, material weaknesses in internal control over financial reporting. Further, management will continue to review the nature and extent of these weaknesses and its impact on the company’s reports and on the effectiveness of their internal control system. In addition, the company will also be assessing its disclosure controls and procedures, and is currently working to implement remedial measures.

Impact of the Restatement

On the basis of management’s preliminary assessment, the total equity as of Mar 31, 2016, is expected to increase by approximately 1% due to the expected cumulative impact of the errors. Further, these restatements are anticipated to add to the previously reported net income for the first-quarter of 2016 by approximately $9 million or 2 cents per share. Notably, the impact of these restatements on total equity and net income will vary in each of the prior quarters.

What’s Next?

Santander Consumer USA is currently working through the appropriate governance process and anticipates filing its amended annual and quarterly reports, along with Form 10-Q for the second quarter of 2016 as soon as possible. In addition, the company is expected to complete the amended filings prior to the deadline for filing Form 10-Q for the third quarter of 2016.

Notably, the company has received waivers for certain debt facilities that require timely filings. Also, the third quarter 2016 earnings call date is also likely to be delayed by the company, which is currently scheduled for Oct 26.

Currently, Santander Consumer USA carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Some better-ranked consumer loan stocks include Regional Management Corp. (RM - Snapshot Report) , Ally Financial Inc. (ALLY - Analyst Report) and Credit Acceptance Corp. (CACC - Snapshot Report) .

Regional Management’s earnings for the current year are expected to grow at a rate of 9.1%. Also, the stock has gained around 55% in the past three months. Notably, the company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ally Financial’s earnings for 2016 are expected to grow at the rate of 10.2% and the stock currently carries a Zacks Rank #2 (Buy). Further, over the last three months, shares of the company have gained more than 20%.

Credit Acceptance’s shares have gained more than 13% in the trailing three months. In addition, the company’s earnings for the current year are expected to grow at the rate of 16.5%. The stock currently carries a Zacks Rank #2.

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