NewtekOne: 8.6% Yielding Bonds Make More Sense Than The Stock

Core Viewpoint - NewtekOne, Inc. (NASDAQ: NEWT) is currently rated as a "Hold" by analysts, with concerns about its leverage and performance in potential downturns, despite its low valuation and attractive dividend yield [1][3][15]. Financial Performance - For Q2 2024, NewtekOne reported earnings per share (EPS) of $0.43 and reaffirmed its full-year EPS guidance of $1.85 to $2.05 [7][9]. - The company experienced a 17% growth in business deposits, reaching $136 million, and a 13% increase in total loan growth [9]. - The net interest margin for Q2 2024 was 4.83%, showing a slight increase from the previous quarter and a significant rise of 51.9% compared to the same period last year [9]. Market Comparison - NewtekOne's total return of 2.48% significantly lags behind the SPDR S&P Regional Banking ETF (KRE), which delivered a total return of 13.57% [6][5]. - Despite the overall positive performance of regional banks, NewtekOne has struggled to keep pace, raising questions about its operational efficiency [5]. Investment Considerations - The stock is trading at less than 6 times estimated earnings, with a dividend yield approaching 6.5%, making it appear cheap relative to its earnings [3][15]. - Analysts express skepticism about the company's ability to manage potential losses during a recession, given the lack of historical performance data in such conditions [15][16]. Business Model Insights - NewtekOne's business model emphasizes non-interest income, which provides some insulation from credit and interest rate fluctuations [13]. - The company has a strong track record in lending to middle-market and small- to medium-sized businesses, leveraging 20 years of experience to navigate economic downturns [16]. Bond Market Activity - NewtekOne has several baby bonds trading on exchanges, which are viewed as safer investments compared to common stock, offering higher yields [17][19]. - The market remains cautious about NewtekOne's prospects, as indicated by the higher yields on its bonds compared to its common shares [18][19].