Has Fidelity Southern Run Out of Steam?

Stock price has been flat recently after a 9-year rally

Author's Avatar
Apr 19, 2018
Article's Main Image

Fidelity Southern Corp. (LION, Financial) has rallied 1,000% since 2009, with the stock price rising from about $2.30 per share to the current price of $23. This period marks one of the company’s best rallies in history, but it now appears to have run out of steam.

Shares of Fidelity have barely moved over the last 15 months, with the price oscillating between $22 per share and $24. Even after the company’s most recent results, which were announced today, the price only added 55 cents, triggering a 2.4% jump in market value.

The short-lived spike has since subsided and the stock price retreated to $23.20. The positive bit about the stock’s ability to remain relatively unmoved is that it has managed to avoid a major plunge like the one witnessed at the start of 2016.

2114772798.jpg

In the most recent quarter, the company did not surprise by much with net income of $11.8 million, reflecting a slight increase from $10.5 million in the year-ago quarter. Sequentially, Fidelity’s first-quarter 2018 net income declined from the fourth quarter of 2017 by $0.6 million, or 3 cents per share. The company’s net income was boosted by a one-time tax benefit of $4.9 million from the U.S. Tax Cuts and Jobs Act.Â

This implies that, from an operational perspective, Fidelity’s bottom line was less impressive. This, perhaps, explains why there was no major rise in stock price after the earnings announcement.

When looking at the big picture, it would be correct to say the company has struggled to grow both the revenue and net income over the last few quarters. In fact, its trailing 12-month revenue and net income have been on a decline over the last three quarters, which explains why the company’s nine-year rally might be ending soon.

2117782135.jpg

The company, however, reinvested in its mortgage unit last year and is beginning to see the benefits. It has continued to expand its small business administration (SBA) loans and mortgage offerings as well as expanding into new markets, which the regional banking institution expects to begin paying off soon.

Fidelity’s revenues have also been affected by the continued divestiture of its indirect auto business. The company recently announced the closure of this business, citing a decline in demand for the product. While this might have a short-term effect on Fidelity’s top line, reinvesting into more profitable and rapidly growing business segments could turn out to be a shrewd move by management.

Looking at the balance sheet, its two recently opened branches in Georgia and Florida played a crucial role in supplementing the $78.1 million deposit growth during the quarter, representing a 2.65% increase to $3 billion as of March 31.

The company also posted a significant increase in net interest income, which grew by $3.9 million, or 10.4%, from the same period last year, while interest expense increased by $1 million.

In addition, Fidelity Southern appears to be doing well from a balance sheet perspective, with its total assets now up $1.7 billion from Dec. 2014 to $4.8 billion. Sequentially, the company added $234.8 million assets, representing 5.1% growth from the previous quarter.

Shares of Fidelity currently trade with a price-earnings ratio of about 17.74 times, which is relatively high for a regional bank. This explains why analysts have a consensus rating of hold on the stock. With an average target price of about $23.50, the company’s rally may have ended.

It would be a good idea to keep a close eye on the stock, however, as it tries to make the most of its recent investments following a continuous closure of its indirect auto business.

Disclosure: I have no positions in any stocks mentioned in this article.