OneMain Holdings (OMF): Seeing Through the Noise – Why Credit Metrics Signal a Re-Rating Opportunity

The consensus Hold ratings on OneMain Holdings (OMF) from BTIG and Barclays appear to be misreading the tea leaves of its Q1 2025 credit metrics. While these firms cite elevated net charge-off (NCO) rates and mixed delinquency signals as reasons to maintain caution, a deeper dive into the data reveals a contrarian narrative: OMF's improving credit quality, coupled with undervalued multiples, suggests the stock is primed for a re-rating as macro concerns fade and underwriting discipline gains recognition. Here's why investors should take a second look.

The Credit Metrics: A Tale of Two Trends

The heart of OMF's valuation debate lies in its Q1 2025 NCO rate of 7.83%, down sharply from 8.58% a year earlier but up slightly from 7.63% in Q4 2024. Critics argue this sequential rise justifies caution, but this overlooks the broader context. Delinquency data tells a clearer story:- 30+ Day Delinquency: 5.16% in Q1 2025, down from 5.76% in Q4 2024 and 5.57% in Q1 2024.- 90+ Day Delinquency: 2.38%, a drop from 2.52% sequentially and 2.86% year-over-year.- Early-Stage Delinquency (30–89 Days): 2.77%, lower than both the prior quarter (3.24%) and the same period in 2024 (2.72%).

While the NCO rate's QoQ uptick may spook short-term traders, the decline in late-stage delinquencies (90+ days) signals stronger borrower performance. This reflects OMF's tightened underwriting standards, not systemic default risks. The slight rise in early-stage delinquency is likely a lagged reaction to Federal Reserve rate hikes, not a sign of deteriorating credit quality. As macro pressures stabilize, these metrics should normalize, setting the stage for NCO rates to resume their downward trajectory.

Peer Comparison: OMF's Undervalued Position

To contextualize OMF's metrics, let's benchmark them against peers:

Discover Financial (DFS):

• NCO Rate: 4.99% (Q1 2025), down from 5.66% in Q1 2024 for credit cards but up sequentially.
• Delinquency Trends: Improved credit card delinquency rates (3.66% 30+ days) but elevated student loan legacy issues.

Credit Acceptance (CACC):

• Loan Performance: Mixed results, with 2022 vintage loans seeing forecasted collection rates drop to 60% from 67.5%, while newer loans (2024/2025) face high uncertainty.
• Valuation: CACC's stock has underperformed due to declining loan volumes and uncertain collection forecasts.

OMF trades at a 0.6x P/B ratio, well below DFS's 1.8x and CACC's 1.5x. This discount ignores OMF's improving credit trajectory. While DFS benefits from lower NCO rates, its exposure to student loan tailwinds is finite. CACC's reliance on volatile loan vintages makes its valuation riskier. OMF, by contrast, offers a cleaner balance sheet and a credit profile that's stabilizing amid macro uncertainty—a combination that should command a higher multiple.

Why the Bulls Are Right

1. Macro-Driven Caution, Not Default Risk: The slight rise in early-stage delinquencies aligns with broader U.S. consumer trends—lower-income ZIP codes saw a 53% increase in credit card delinquency rates since 2021. Yet OMF's disciplined underwriting (focusing on mid-tier borrowers) has insulated it from the worst of these pressures.
2. Late-Stage Delinquency Improvements: The 2.38% 90+ delinquency rate is a 16.5% improvement over Q1 2024. This metric is a lagging indicator of credit quality, suggesting underwriting improvements are finally bearing fruit.
3. Valuation vs. Peers: At 0.6x P/B, OMF is priced for failure. Even if NCO rates stabilize near 7.8%, its asset quality and cost discipline should support a revaluation toward 0.8x–0.9x, implying a 33%–50% upside.

Investment Thesis: Contrarian Buy Opportunity

BTIG and Barclays' Hold ratings reflect a myopic focus on QoQ NCO volatility while missing the structural improvements in OMF's credit portfolio. The stock's valuation discount is excessive relative to its peers and its own improving fundamentals. Investors should:

• Buy the dip: Use any near-term weakness tied to macro fears to accumulate shares.
• Target 0.8x P/B: A reasonable midpoint between its current valuation and peer averages.
• Monitor NCO trajectory: A sequential decline in Q2 2025 would validate the re-rating narrative.

Conclusion

OneMain Holdings is a classic contrarian play. Its credit metrics suggest it's outperforming peers like CACC while trading at a discount to DFS's more volatile business. The Hold ratings underestimate the durability of OMF's underwriting gains and overreact to transitory delinquency blips. For investors with a 12–18 month horizon, OMF offers a compelling risk-reward: a potential 40%+ return as the market catches up to its improving credit story. The question isn't whether OMF is undervalued—it's how long it will take for the consensus to realize it.