Home Capital Group Posts 138% Profit Growth in Q4; Shares Pop 6%

Shares of Home Capital Group (HCG) rose more than 6% Thursday after the company reported substantial growth in net income in its first quarter. The Toronto-based company provides deposit, mortgage, and retail credit services in Canada.

Net income was C$64.5 million (C$1.24 per share) in Q1 2021, an increase of 138.5% from C$0.52 per share in Q1 2020. Adjusted net income totaled C$65.7 million (C$1.26 per share) in the three months ended March 31, up 125% from C$0.56 per share in the prior-year quarter. Analysts expected adjusted EPS of C$1.24.

New mortgages issued to single-family home buyers (originations) were up 27% from the previous year. The red-hot Canadian housing market positively impacted Home Capital’s results.

The alternative lender said that it intends to start paying a dividend again – something it hasn’t done in four years.

Home Capital’s President and CEO Yousry Bissada said, “Once OSFI modifies or removes its expectations with respect to dividends and share buybacks, the Company intends to consider appropriate mechanisms to optimize its capital levels, including share repurchases and dividends. Balancing business opportunities against returns of capital and subject to prevailing market conditions, we intend to sustainably manage towards a target CET1 range of 14%-15%.” (See Home Capital Group stock analysis on TipRanks)

Yesterday, Stifel Nicolaus analyst Cihan Tuncay maintained a Buy rating on HCG while raising its price target to C$43.00 (from C$42.00) for 19% upside potential.

Tuncay stated, “We think HCG is one of the best ways to trade the de-urbanization paradigm shift in the fall out of the pandemic.” He added that the stock “continues to trade at a wide discount to peers”.

The rest of the Street is cautiously optimistic on HCG with a Moderate Buy consensus rating, based on 3 Buys and 2 Holds. The average analyst price target of C$38.60 implies upside potential of 6.9% to current levels. Shares have risen more than 20% year-to-date.

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