Wedbush Securities believes Green Dot Corp. (NYSE: GDOT) will continue its impressive growth as it leads the rapidly evolving reloadable prepaid category. The brokerage said Green Dot's results are on track for 25 percent-plus long term growth, regulatory risks are under control and no serious new competitors are impacting its markets.
"We believe the bank acquisition approval by the Fed cements Green Dot as the most important low-end disruptor in consumer financial services. We believe Green Dot can now introduce new products that its competitors cannot. The delay in approvals has held up these product introductions and we now expect new product announcements within the next few months," said Gil Luria, an analyst at Wedbush Securities.
Luria believes that with a captive issuer Green Dot can avoid the type of disruption that NetSpend suffered from Metabank. He believes that being able to exclude its cards from Durbin, through the less than $10 billion of assets exclusion, will allow more flexibility around products such as Billpay.
The gradual nature of the accretion is a result of the 7-month average life of existing consumers and Walmart's arrangements with GE Money. Luria does not expect any additional costs for Green Dot since the bank it has purchased was already break-even and it has already staffed up for this outcome.
Green Dot will maintain 15 percent Tier 1 leverage ratio and withhold dividends for three years. Luria believes the incremental regulation will not add a significant burden given Green Dot's multitude of current regulators and compliance staff.
"Fourth quarter may represent inflection point, in our opinion. We expect fourth quarter to show sequential revenue acceleration and year-over-year margin expansion, both constituting a first since the IPO, allaying lingering concerns," said Luria.
The brokerage reiterated its "outperform" rating on shares of Green Dot with a price target of $66.
Green Dot stock closed Friday's regular trading up 1.92 percent at $30.19 on the NYSE.