NewtekOne Inc (NASDAQ: NEWT): Key Challenges and Opportunities

NewtekOne Inc (NASDAQ: NEWT) established in 1998 and headquartered in Boca Raton, Florida, has evolved significantly over the years. Originally known as Newtek Business Services Corp., the company rebranded to NewtekOne, Inc.

To further enhance its technological capabilities, NewtekOne provides a diverse range of services, including lending solutions, accounts receivable lines of credit, electronic and mobile payment processing, payroll and benefits processing, web design, e-commerce solutions, insurance services, IT support, and a cloud-based operating platform known as The Newtek Advantage.

Operating nationwide, the company is dedicated to helping SMBs grow sales, control expenses, and mitigate risks through innovative, cost-effective products and services.

Highlights and News Updates

• On 12^th December 2024, Apiture & Newtek Bank win ‘Best Bank-FinTech Partnership’ at the IBSi GFIA 2024

• On 11^th November 2024, NewtekOne announces US $1 million share buyback plan.

• On 4^th November 2024, NewtekOne appointed Ron Lay as Chief Technology Officer in November 2024, aiming to drive innovation and improve service delivery.

Key Data

What makes NewtekOne, Inc. a good dividend stock?

NewtekOne, Inc. (NASDAQ: NEWT) is an attractive dividend stock due to its high dividend yield, consistent payment history, and commitment to shareholder returns. The company’s niche focus on providing financial and business solutions to small and medium-sized businesses (SMBs) positions it to generate steady revenue streams, bolstering its ability to maintain and grow dividends. Its expanding loan portfolio and diversified services, including lending, IT solutions, and payroll processing, ensure consistent cash flow, even during economic fluctuations. NewtekOne emphasizes transparency in its financial operations, giving investors confidence in its dividend sustainability. With robust growth in SMB lending and revenue diversification, the company is well-positioned to capitalize on market opportunities, making it an appealing choice for income-focused investors.

Dividend History

The dividend of NewtekOne, Inc. has demonstrated a consistent upward trajectory. Presently, the corporation offers a dividend of US $0.19, with a notable aspect being its projected expansion.

The line chart depicts the dividend growth rate of a company over the years 2020 to 2024. The dividend growth rate has been quite volatile during this period. In 2021, the company experienced a significant increase in dividend growth, reaching a peak. However, in 2022, the growth rate declined sharply. The year 2023 saw a substantial decrease in dividend growth, reaching the lowest point on the chart. In 2024, there was a notable recovery in the dividend growth rate, indicating a positive trend. Overall, the chart suggests that the company’s dividend growth has been inconsistent, with periods of strong growth followed by significant declines.

Third Quarter 2024 Highlights

• Revenue earned for the quarter was US $83.1 million. Revenue exceeded analyst estimates by 1.0%.

• Net income was US $11.9 million, and earnings per share (“EPS”) was US $0.45 per basic and diluted common share, a 4.7% increase, on a per share basis.

Financials

NewtekOne, Inc. showed substantial revenue growth, rising from US $74.3 million in 2020 to US $149.9 million in 2023, accompanied by an increase in gross profit. However, operating expenses, particularly Sales, General, and administrative costs, surged sharply from US $41.9 million in 2020 to US $143.2 million in 2023, leading to a decline in operating income from US $65.2 million in 2021 to just US $3.9 million in 2023. Despite this, the company saw a significant boost in additional income in 2023, helping offset higher interest expenses and allowing net income to rise from US $33.6 million in 2020 to US $47.3 million in 2023. This indicates that while NewtekOne faced challenges in managing operational costs, it remained profitable, supported by non-operating income gains.

NewtekOne, Inc. demonstrated consistent growth in total revenue over the quarters, from US $41.7 million in Q4 2023 to US $48.4 million in Q3 2024, accompanied by a steady increase in gross profit. Operating expenses remained relatively stable, with SG&A costs fluctuating between US $37.3 million and US $40.6 million, while other operating items saw a rise from US $5 million in Q4 2023 to US $7.4 million in Q3 2024. Operating income grew steadily, from US $3.7 million in Q4 2023 to US $9.5 million in Q3 2024, reflecting improved operational efficiency. Despite stable interest expenses around US $18-20 million, net income increased from US $10.8 million in Q4 2023 to US $11.9 million in Q3 2024, showing strong profitability. The company effectively managed costs and saw a consistent rise in net income applicable to common shareholders, from US $10.4 million in Q4 2023 to US $11.5 million in Q3 2024.

NewtekOne Inc.’s debt increased from US $481 million in 2021 to US $1.15 billion in 2023, with the largest jump between 2022 and 2023. This rise likely reflects significant investments or expansion efforts. While it signals growth, the increasing leverage poses potential risks if revenues don’t keep pace.

Right now, the EPS of the company is at US $1.88 which is an increase of 40.30% compared to last year.

Forecast

Right now, the company is trading at US $12.85, with a 1-year projected target of around US $15.90 and a low estimation of US $12.10; the average price target will be US $14.70. The recommended buy price will be near US $12.

Technical Analysis

• The price action analysis of the stock indicates a positive uptrend in the stock.

• The momentum indicator is giving a bullish signal.

• The stock has the potential to bounce back up to 15%-24% from the current market price.

Indicators Summary – Buy

• Market sentiments are bullish, and stock can go up further.

• MACD is also giving us a buy signal.

• VWAP is also giving buy signal.

Risks factors

As with any corporation, NewtekOne, faces various risks that could potentially impact its financial performance, operations, and overall business outlook. Some of the key risks associated with NewtekOne include:

• As a financial holding company, NewtekOne must adhere to extensive federal regulations and be supervised by agencies such as the FDIC, OCC, and Federal Reserve. Non-compliance could materially impact the company’s business and financial condition.

• Rising debt level is also a concern. The management should keep an eye on the rising debt. To overcome the debt the company’s revenue should go up. They also have borrowed these loans at high interest rates around 8.5% some of the debt has repayment in 2028 and 2029.

• Fluctuations in interest rates can impact NewtekOne’s net interest margin and profitability. Economic recessions or financial market volatility can reduce demand for financing and advisory services.

• NewtekOne provides loans to small and medium-sized businesses, which often carry higher default risks. Economic downturns could significantly increase non-performing loans (NPLs). Exposure to specific industries or regions could lead to concentrated credit risks if certain sectors face downturns.

• The company relies heavily on external financing (e.g., debt or equity issuance) to fund its operations. Adverse market conditions could make it difficult to raise funds at favorable terms. High leverage could limit financial flexibility and increase vulnerability during downturns.

• Intense competition from banks, non-bank financial institutions, and other BDCs could pressure margins and reduce market share. Larger financial institutions may have access to more resources, enabling them to offer better rates or services.

Stock Recommendation

NewtekOne Inc. could be a compelling investment due to its history of revenue growth and profitability. The company’s valuation might present an attractive entry point compared to its peers, and it offers a dividend yield that could appeal to income-seeking investors. Furthermore, the intrinsic value of the stock is at US $14.28.

MarketFacts gives a “Buy” rating on the stock at the closing price of US $12.85 as of January 23rd, 2025.

CMP (US)  (January 23, 2025)	$12.85
Target Price	$15.90
Recommendation	Buy

Disclaimer:

The information provided in this document and the resources available for download are intended for informational purposes only and should not be interpreted as financial advice. While the content is based on thorough research and is accurate to the best of our knowledge, it is not a substitute for professional financial guidance. We strongly recommend consulting with a financial advisor to discuss your specific situation and obtain tailored advice before making any financial decisions.