NewtekOne: Insider Buying Ramps Up On Former BDC Darling

An analyst expresses concern over NewtekOne's financial performance following its decision to abandon the BDC structure, noting that current earnings are lower than in 2021 despite increased leverage. The analyst maintains a long position in NewtekOne's baby bonds and suggests that the decision to leave the BDC structure was a poor one.

Analysis

NewtekOne, Inc. (NEWT) is under scrutiny following its decision to abandon the Business Development Company (BDC) model, a strategic shift highlighted by the reporting analyst as problematic. This transition has coincided with a concerning financial trend: NewtekOne's earnings are now reported to be lower than in 2021, despite the company employing 'far higher leverage.' The analyst, representing 'Trapping Value,' explicitly states their belief that 'the decision to leave the BDC structure was so awful.' Paradoxically, the same analyst discloses a beneficial long position in NEWT's shares, options, or other derivatives, alongside their Conservative Income Portfolio's existing holdings in various NewtekOne baby bonds, even after previously advising to 'stick to the armada of baby bonds.' This complex stance, from an analyst focused on capital preservation and value, is set against a backdrop of moderately negative overall article sentiment (-0.5) and a specific negative sentiment for NEWT (-0.7), with primary concerns revolving around corporate earnings and company fundamentals post-transition.

Key Decisions for Investors

• Investors should critically scrutinize NewtekOne's financial performance and strategic execution under its new non-BDC structure, particularly addressing the concerning trend of lower earnings despite significantly higher leverage compared to 2021.
• The reporting analyst's disclosed long equity position, maintained despite strong criticism of the BDC model exit and a previous preference for bonds, suggests a potential deep-value or special situation thesis that warrants thorough due diligence from investors considering NEWT.
• A comparative risk assessment of NewtekOne's common equity versus its baby bonds is advisable, especially as the analyst's fund continues to hold the latter, which may offer a different risk-return profile amidst the company's strategic uncertainties.
• Closely monitor NewtekOne's upcoming earnings reports, management's detailed plans for value creation under the revised structure, and any shifts in profitability or leverage ratios before making or adjusting investment positions.