Raymond James analyst Robert Dodd upgraded Newtek Business Services ( NASDAQ: NEWT ) to Market Perform from Underperform Monday as its earnings outlook brightens and its near-term dividends provide support.
The analyst, though, still has concerns about a significant dividend decline after its bank conversion.
"We see a muted risk/return at current levels, but not so muted from current price levels as to justify the prior Underperform rating going forward," Dodd wrote in a note to clients.
Better-than-expected Q2 results showed strong demand for SBA 7(a) loans. "With premiums of 7(a) likely to rise with allowable coupons higher, the outlook for NEWT earnings is brighter," he said.
As for Newtek's ( NEWT ) dividend, the company said it expects to pay a BDC dividend of $1.00-$1.50 per share in the second half of the year vs. $1.40 that it paid in the first half.
Management continues to hope the bank holding company will occur in Q3 2022, Dodd said. About a year ago, Newtek ( NEWT ) agreed to buy National Bank of New York City in its plan to convert to a bank holding company.
Dodd's Neutral stance aligns with the Quant rating of Hold and with the average Wall Street rating.
SA contributor Michael Coppola discussed the curious case of Newtek Business Services
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Newtek Business raised to Market Perform at RayJay on earnings, near-term dividend