3. Axos Financial Inc. (NYSE:AX)
Average Upside Potential: 25.87%
Forward Price-to-Earnings Ratio: 8.64
Number of Hedge Fund Holders: 25
Axos Financial Inc. (NYSE:AX) is a digital bank that offers a range of financial products and services, including personal and business banking, mortgages, and wealth management. It is known for its online-only approach, which allows it to offer competitive rates and fees. It also focuses on providing excellent customer service through its digital channels.
In FQ4 2024, the company showed strong financial performance, reporting a 20% increase in net income to ~$105 million and earnings per share of $1.80, marking a 51% year-over-year growth. Ending loan balances rose by 2.7% linked quarter and 16.9% year-over-year, reaching $19.2 billion. The overall revenue grew by 23.03% in this quarter.
Deposits increased by about $256 million, primarily from non-interest-bearing sources, contributing to a 26% growth in tangible book value per share. The net interest margin was reported at 4.65%, up 46 basis points from the previous year but down from the prior quarter due to higher excess liquidity.
The company maintained strong credit quality, with net annualized charge-offs at just 5 basis points and non-performing loans decreasing by $9 million sequentially. It continues to focus on diversifying its lending and deposit businesses, with ongoing investments in technology and operational improvements aimed at enhancing customer experience and driving future growth. These factors come together to make Axos Financial Inc. (NYSE:AX) well-positioned for success.
Gator Capital Management made the following comment about Axos Financial, Inc. (NYSE:AX) in its first quarter 2023 investor letter:
“A second but higher risk opportunity is in select regional banks. Coming into March, regional banks were already at the low end of their long-term valuation range. In March, the regional bank index declined 29%, and many well-run regional banks declined more than the index. We admit there are many new negatives for regional banks in the aftermath of the Bank Crisis. Still, we think they have become too cheap and have the potential to outperform as we get clarity on the going forward business model.
We see four new negatives for regional banks: 1) uninsured deposits will decline unless deposit insurance limits are increased, 2) banks will operate with higher liquidity going forward, 3) deposit repricing is accelerating, and 4) regulatory uncertainty is high.
Despite these four new negative issues for banks, we believe regional bank stock prices have overshot to the downside. We estimate these four issues will cause a 10% decline in earnings, which is not bad compared to a 30% decline in stock prices. We believe the banks will be able to overcome some of these negatives with wider spreads on loans going forward. We believe we must focus on the best management teams that have shown the ability to grow while maintaining discipline on expenses.
Some banks we have identified include Axos Financial, Inc. (NYSE:AX), United Missouri Bank, Webster Financial, and Pinnacle Financial. These banks are strong performers and don’t have the same problems that SIVB and others had with their bond portfolios. These banks have strong deposit franchises and have posted strong loan growth for many years. We believe they will be able to balance the demands of the new banking environment and post strong results.”
