We came across a bullish thesis on Mr Cooper Group Inc (COOP) on ValueInvestorsClub by sirisaiah623. In this article we will summarize the bulls’ thesis on COOP. Mr Cooper Group shares were trading at $78.73 when this thesis was published, vs. closing price of $83.31 on Aug 6.
A portfolio of mortgage-backed securities with a magnifying glass, emphasizing the detail of credit risk management.
Mr. Cooper Group (COOP) dominates the mortgage servicing sector since merging with Nationstar Mortgage Holdings in 2018, becoming the largest non-bank servicer in the U.S. with over $1.1 trillion in unpaid principal balances. Operating through Servicing, Origination, and Corporate/Other segments, COOP thrives on its servicing fees and opportunistic origination strategies.
Servicing forms the core of COOP’s revenue, managing loan payments and related activities with a “naturally hedged” model that balances steady income with profit from originations and refinancings. Despite recent low origination volumes due to high interest rates, COOP remains poised to capitalize on future rate decreases.
Financially, COOP has grown Tangible Book Value (TBV) per share by 26% since 2018, targeting a Return on Tangible Equity (RoTE) of around 15%. Strategic acquisitions of Mortgage Servicing Rights (MSRs) and growth in subservicing bolster its customer base and revenue streams.
Market dynamics, including low origination and refinancing activities, challenge COOP but also present opportunities. The company’s ability to recapture refinancing at high rates, currently 70-80%, positions it well for future growth. Technological partnerships with Google Cloud and fintech platforms enhance operational efficiency and reduce costs.
COOP mitigates risks such as interest rate sensitivity and regulatory changes through hedging strategies and a diversified business model. Its valuation reflects growth prospects, offering a projected Internal Rate of Return (IRR) of 23.5% and a Multiple on Invested Capital (MOIC) of 1.76x over coming years, making it attractive to investors eyeing the mortgage servicing sector’s potential.
In summary, COOP stands out for its resilience and strategic position in mortgage servicing. With a robust servicing portfolio, strong financial performance, and a focus on innovation, COOP is well-prepared to navigate market complexities and deliver long-term value to shareholders. As the housing market evolves and interest rates fluctuate, COOP’s adaptability and proactive approach will remain crucial for sustaining its leadership in the industry.
COOP is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held COOP at the end of the first quarter which was 35 in the previous quarter. While we acknowledge the potential of COOP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as COOP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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