Pine River Capital Buys Shares of Mortgage Services Company PHH

We would compare PHH to ORIX Corporation (NYSE:IX), CIT Group Inc. (NYSE:CIT), CapitalSource, Inc. (NYSE:CSE), and Bank of America Corp (NYSE:BAC). Orix, CapitalSource, and CIT have also been reporting significant improvement on their bottom lines, while Bank of America has lagged these peers; its revenue and earnings were each down over 20% last quarter compared to the fourth quarter of 2011. Bank of America is cheap on a book basis, with a 40% discount to its book value, while CIT and CapitalSource trade at P/B ratios close to 1. Bank of America also is cheap in terms of its forward P/E of 9, but we aren’t confident enough in its business to buy the stock (other megabanks generally seem like better buys). CIT could be a good prospect: while it is still unprofitable on a trailing basis as it digs out of a poor first half of 2012, its forward earnings multiple is in line with PHH’s and revenue growth has been strong.

The hedge fund activity in PHH is interesting, and in pure value terms we like that it trades at a discount to book value. Since we’re not fully trustworthy of Wall Street analysts we would not take earnings projections at face value, but there are enough good points that we could certainly see a value investor putting PHH on a watch list to see how the next quarter turns out. Two quarters of profitability would inspire considerably more confidence than one.

Disclosure: I own no shares of any stocks mentioned in this article.