Analyst chops target on goeasy (TSX:GSY)

National Bank Financial analyst Jaeme Gloyn lowered his target for goeasy (goeasy Stock Quote, Chart, News, Analysts, Financials TSX:GSY) to $44.00 from $53.00, saying deteriorating credit conditions, weaker loan growth and uncertainty surrounding profitability continue to weigh on the Mississauga-based consumer lender.

In a Nov. 12 report, Gloyn maintained his “Sector Perform” rating, warning that goeasy’s efforts to stabilize its lending operations could take longer than expected.

“Management had a balanced tone, acknowledging the tough macroeconomic environment they are operating in while trying to transition back to steady state,” Gloyn said. “The focus is on growing with profitable and resilient customers.”

Goeasy reported a third-quarter net loss of $17-million, or $1.03 per diluted share, compared with net income of $28.4-million, or $1.70 per share, a year earlier. Revenue declined 18% to $371.6-million from $454.2-million, reflecting a smaller loan portfolio and lower lending yields. Gross consumer loans receivable fell to $4.88-billion from $5.44-billion a year earlier as the company tightened underwriting standards, particularly for automotive and powersports loans. Loan originations declined 40% year-over-year to $567.5-million.

Credit losses remained elevated. The annualized net charge-off rate reached 15.2%, compared with 9% a year earlier, although it improved from 16.7% in the second quarter. The company’s allowance for expected credit losses increased to 10.59% of outstanding loans from 9.99% in June, reflecting continued concerns about borrower performance and the economic outlook.

“GSY reported: i) increased delinquency rates across the board ii) reduced guidance for loan growth and higher net charge-offs, and iii) a higher provisioning rate due to higher expected losses across both auto/powersports and unsecured easyfinancial lending portfolios,” Gloyn said.

Goeasy expects its loan portfolio to decline further to between $4.6-billion and $4.8-billion by year-end, with fourth-quarter net charge-offs ranging from 14.5% to 16%.

CEO Patrick Ens said the company made progress on its restructuring plan, reducing quarterly charge-offs and strengthening liquidity. Goeasy ended September with $1.23-billion in available liquidity, including cash and unused borrowing capacity. It also renewed its securitization facility at a lower borrowing spread.

However, Gloyn said the improvement in liquidity does not eliminate questions about future earnings and capital requirements.

“Bottom line: credit performance remains choppy, profitability in 2027 is a bigger question mark, and an equity raise is still on the table,” the analyst wrote. “As a result, we reduced our estimates and price target.”

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