Amazing Upside Left at Ocwen Financial Corp (OCN)

While the market remains focused on chasing every business run by Elon Musk, it continues to ignore huge cash flow generators such as Ocwen Financial Corp (NYSE:OCN). The company grew revenue by 147% during the first quarter of 2013 yet all indications are that the pipeline is loaded with further growth.

The mortgage servicing sector has become a very profitable business since the financial crisis as large banks have sold the rights to smaller, focused firms such as Ocwen Financial Corp (NYSE:OCN) and Nationstar Mortgage Holdings Inc (NYSE:NSM). The ongoing trend of banks selling off non-core servicing assets is expected to continue as more and more national (NYSE:NSM) and regional banks see the servicing of delinquent loans as harmful to the banks consumer franchise and capital requirements make the rights attractive to sell.

Ocwen Financial Corp (NYSE:OCN) engages in the servicing and origination of mortgage loans. The company claims to be able to use proprietary technology to provide solutions to help homeowners and client’s loans become worth more.

Earnings growth opportunities

Even with the huge revenue growth and potential pipeline of new deals, the stock has mostly stalled since October last year. Investors generally fear that the growth opportunities have peaked and that earnings will stall as the real estate market improves and the general economy grows. After all, who needs an expert in delinquent mortgage servicing if the loans don’t exist?

During the earnings call, Ocwen Financial Corp (NYSE:OCN) spent a considerable amount of time discussing the long term potential. The company will spend this year and next year integrating the Homeward and ResCap deals that brought in $469 billion worth of unpaid principal balance (UPB). It also sees a pipeline of $375 billion from other bank divestitures along with the potential for expansion into prime and reverse mortgages.

Ocwen Financial Corp (NYSE:OCN) forecasts that the cumulative adjusted operating cash flow over 10 years could hit nearly $12 billion if the company can re-invest excess cash at a 15% return. See the slide from the earning call below:

Competitor spin-off?

Nationstar Mortgage Holdings Inc (NYSE:NSM) remains a force in the sector with the servicing portfolio expanding to an UPB of $435 billion. On the first quarter earnings report, the company forecast earnings of $4.05 – $4.75 in 2013 and $6.45 – $7.50 in 2014. Based on those numbers, the stock only trades at 6 times those forward estimates.