Santander Consumer USA Holdings Inc. [NYSE: SC]: On Friday, Santander was a big gainer, closing the day at $22.58, up by 9.51%. This bullish rally was driven by news that the Federal Reserve Board of governors had given a nod to a $400 million share buyback program. This bullish price action saw the stock bounce off 5-day support on the 50-day MA at around $22.51. If this bullish sentiment holds when the markets open, Santander could break off the $22.18 – $22.60 consolidation on the 5-day chart. It would mark a continuation of the bullish trend that is clearly established on the monthly chart. A key area of resistance it needs to break to the upside is shown below in the chart.
There are a number of factors that could play a role in pushing this stock up to break the resistance shown on the chart above. The first one, for starters, could be this this buyback program. For starters, the buyback could be an indicator that the stock is undervalued. One of the key motivations for buybacks is to try to help push a company to its true value. It usually happens when shareholder’s short-term expectations can’t make out the long-term potential of a company. In the case of Santander, the company could be trading below its true value, when factors like its growing market share are put into consideration. As of Q1, the company gave out about $6.3 billion in auto loans, and was up by around 18%, compared to Q1 in the last financial year. The company’s level of bad debts has also dropped sharply in the past year, falling from roughly 7.3% to 3.8%. Its recovery of bad debts has improved by around 1.9% to hit about 46.8%. All these factors kind of paint the picture of a growth company, one with good prospects in the long run, and one that has the probability of higher valuation now that it is buying back its own shares.
On top of that, with the share buyback program, the company could now be in a better position to wither the negative effects of a recession, if it hits the market short term. One of the reasons why company’s buyback their own shares is to protect themselves from value dilution in a recession or pull back in the market. That’s because, in a recession or a market correction, such companies don’t have to deal with appeasing shareholder demands for dividends. A company that buys back stock can preserve capital and take measures that can help it stay afloat, until markets rebound. That could be a plus for Santander, and could help the company continue gaining in value, in case of a market correction.
However, and as indicated above, SC needs to break out of that key resistance area in the chart listed above to make its next move.
On the flip side, SC does appear to be a healthy company, with a healthy profit margin of about 23.29%. Its revenues are growing steadily too, and its quarterly revenue growth (yoy) now stands at around 13%. That’s a pointer to its strengthening position in the subprime auto loans market. The company is showing a Book/sh of $20.36, Sales of $7.34 Billion and a dividend of 3.54%. This is a signal that it has more than enough current assets to cover liabilities it has within the current financial year. It’s operating cash flows of about $5.84 billion also means that it can likely meet its operational obligations without hurting its operations. Its prospects look better now that its share buyback program has been approved. However, the stock needs to break that key area of resistance on the chart shown above before it can make its next potential move north.