New Mountain Finance’s common shares will need to reach $21 to achieve average annual stock market performance of 9.0% over the next 6 years. New Mountain Finance’s stock price will need to reach $25 by 2029 to achieve upper quartile performance. What is the market’s view of New Mountain Finance’s future operating performance as reflected in the current price of $13?
Executive Summary
- New Mountain Finance’s important characteristics: very high profitability, stability, below average expected growth, and below average financial strength.
- Average valuation, above market shareholder returns. Current valuation levels are average relative to the New Mountain Finance Peer Group. Recent market returns have outperformed the New Mountain Finance Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, New Mountain Finance shares should reach a level of $19 by 2029 — an 15.9% per year total shareholder return. A 2029 stock price of $21 would reflect median performance and a price of $25 would be required to reach upper quartile performance.
- New Mountain Finance’s past growth is modestly above average. Historical growth has been high relative to the New Mountain Finance Peer Group and forecasted growth is relatively average. Revenue Growth has been superior. Asset Growth has lagged. New Mountain Finance’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth resulting in an improving return on equity.
- Return on Equity, and Asset Turnover are group leading. These factors have strengthened market perceptions of New Mountain Finance. The company has very high excess cash and will have to work to reinvest at attractive returns to support profitability and valuation.
- New Mountain Finance’s risk profile is favorable. Overall variability has been relatively low with relatively low revenue variability, only average E.P.S. variability, and only average stock price volatility. Financial Strength is only average and earnings’ expectations are relatively high. The debt/capital ratio has been relatively steady.
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