Ocwen Financial Corp (NYSE:OCN) announced their quarterly earnings last week at a solid $0.47 per share. This represents an increase of 67% in adjusted earnings from the same time last year. Unfortunately, they missed Wall Street estimates of $0.50 earnings per share.
Ocwen Financial Corp (NYSE:OCN) provides loan servicing for mortgages, as well as asset management in the United States and abroad. They manage residential assets and are engaged in the investment of subprime loans and the trading of mortgage backed securities.
The company’s share price is up 146% for the last twelve months thanks largely to their growing earnings. They have had a recent pull-back as some investors took their profits.
While Ocwen Financial Corp (NYSE:OCN) did miss the average earnings estimate, there were some other highlights.
- 2012 revenue was $841 million which is a 70% increase over 2011
- Operating income grew by 87%
- Cash flow from operations was $1.8 billion for the year
At the end of fiscal year 2012, Ocwen Financial Corp (NYSE:OCN) purchased Homeward Residential which is now a part of a Department of Justice investigation on mortgage modifications. This was announced on March 1.
Ocwen also purchased a $2.1 billion servicing business from Ally Financial called Residential Capital. This closed on Feb. 15 and was not included in their earnings.
After the two new additions, Ocwen’s servicing portfolio is over $460 billion.
Ocwen Financial Corp (NYSE:OCN)’s stock price has been steadily increasing–does this signal an improvement for mortgage servicing companies? While Ocwen Financial Corp (NYSE:OCN) is in the savings and loan industry, their core business revolves around mortgages and loan servicing.
Nationstar Mortgage Holdings Inc (NYSE:NSM) posts earnings this week. Nationstar is a mortgage servicing company and writes loans for residential mortgages. It went public last March and has had decent earnings since then.
The expected Q4 EPS is $0.69, which is a 13% increase from last quarter. This puts the 2012 annual earnings at $2.38 per share. For fiscal year 2013, earnings are expected to be $3.93 per share.
Using the current P/E, this company is expected to trade at $95.93 from the current $39.23. When looking at the P/E of companies roughly their size, the value jumps to $216 per share! Obviously, this is a drastic price increase that isn’t expected. So another form of valuation must be used.
Capitalizing their earnings at a discount rate of 9% puts the company’s stock price target at $43.67 for 2013.