Medallion Financial Corp., a company long associated with the rollercoaster ride of the New York City taxi medallion market, is quietly undergoing a fascinating transformation. While analysts focus on the expected slowdown in medallion-related cash collections, a subtle shift in the company's strategic focus is emerging from the Q1 2024 earnings transcript. It's a shift with the potential to unlock significant shareholder value and transform Medallion Financial into a compelling growth story. The hidden gem? Their strategic partnership with TriBeam, a solar installation financing platform.

Medallion Financial's entry into strategic partnership operations has been marked by a cautious approach, perhaps driven by a desire to avoid the volatility that plagued their medallion business. Past partnerships, while not outright failures, have underwhelmed in terms of volume and bottom-line impact. The transcript, however, reveals a newfound optimism surrounding TriBeam. Anthony Cutrone, Medallion Financial's CFO, explicitly states, "We think we might have that [viable business] with this new partner." This optimism stems from several factors, including TriBeam's strong backing, its focus on a familiar home improvement space (solar installations), and, most importantly, the potential for "significant volumes."

While the transcript is characteristically cautious about quantifying TriBeam's potential impact, it offers tantalizing clues. The CFO suggests that if TriBeam delivers on expectations, it "could think about adding another $1 million or $2 million to the bottom line." President and COO Andrew Murstein echoes this sentiment, adding that "it easily could add $1 million to $2 million of earnings."

Breaking Down the Numbers

Let's break down these numbers. Assuming a 25% tax rate (in line with Anthony's expectation that the Q1 tax rate will smooth out throughout the year), TriBeam's potential pre-tax contribution to earnings could be between $1.33 million and $2.66 million. This translates to a potential EPS impact of approximately $0.05 to $0.11 per share annually.

What makes TriBeam so compelling is the minimal credit risk involved. Unlike their traditional lending businesses where Medallion Financial holds the loans on their balance sheet, the TriBeam partnership is initially structured as a fee-based origination model. They'll likely hold a small portion of the paper for 30 to 90 days to ensure quality control, but the bulk of the risk is transferred to other parties.

This capital-light model, combined with the potential for high volumes, mirrors the strategy employed by other successful fintech-bank partnerships, which boast impressive ROEs exceeding 20%. If TriBeam delivers, Medallion Financial could be on the cusp of replicating this success in a rapidly growing market, solar financing.

The Buyback Hypothesis

Here's where the hypothesis gets interesting. The transcript suggests that while Medallion Financial is currently content with high single-digit loan growth in 2024, the success of TriBeam could change their calculus. The combination of strong April originations in their traditional lending businesses ($100 million, up 25% year-over-year) and the potential windfall from TriBeam could create a surplus of capital. This surplus, coupled with the stock's persistent discount to tangible book value (approximately 30% as of Q1 2024), might incentivize Medallion Financial to accelerate their buyback program.

Currently, Medallion Financial has $17.9 million remaining in their $40 million share repurchase authorization. If TriBeam performs as hoped, it's entirely plausible that the company could exhaust this authorization by year-end. This would have a significant impact on EPS, potentially boosting it by an additional $0.07 per share, assuming an average repurchase price of $7.50 (in line with the stock's recent trading range).

A Potential Earnings Beat

The potential impact of TriBeam is not reflected in current analyst expectations. The consensus EPS estimate for 2024 sits at $1.52, which primarily reflects the core lending business and a modest contribution from medallion settlements. The successful execution of the TriBeam partnership, however, could result in a substantial earnings beat, potentially pushing EPS towards $1.70. This, in turn, could trigger a long-overdue revaluation of the stock, finally reflecting its strong earnings power and efficient capital deployment.

Conclusion

Investors seeking a compelling growth story masked by an unassuming legacy business should pay close attention to Medallion Financial's next few earnings calls. The TriBeam partnership is a potential game-changer, poised to illuminate the company's true value and propel it towards a brighter future.

Loan Origination Growth

The following chart illustrates the growth in loan originations for Medallion Financial over the past two quarters and April 2024, highlighting the potential for continued growth driven by TriBeam.

"Fun Fact: Medallion Financial's shift towards renewable energy financing through TriBeam aligns with the growing global trend of sustainable investments. The solar energy market is expected to reach \$223.3 billion by 2026, presenting a significant growth opportunity for companies like Medallion Financial. Source: Allied Market Research"