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Servicing

Jeffries downgrades Nationstar from buy to hold

Part of a nonbank trend?

NAHB

If you believe the analysts, then it’s beginning to look like it’s going to be a tough year for the nonbank servicing companies.

On Thursday, Compass Point Trading and Research downgraded Walter Investment Management Corp. (WAC) from “neutral” to “sell” citing margin pressure through the rest of the year.

Today fellow nonbank servicer Nationstar Mortgage (NSM) has been downgraded from “buy” to “hold” by Jefferies and established a new price target of $32, down from its previous target of $42. As of 11 a.m. EDT, Nationstar is trading at $30.89.

Jefferies analyst Daniel Furtado said, “In our view NSM needs to deliver on 3 key initiatives for company guidance to be met, with cooperation also needed on the regulatory front.”

Jefferies had previously rated Nationstar as a “buy” because of “upcoming catalysts, including: bulk servicing transfers, the impact from higher rates, and, in our opinion, the likely spin-off of SolutionStar.”

But Jefferies is now downgrading Nationstar due to “our revised servicing margins, UPB growth, and gain of sale margin assumptions."

Compass Point is “neutral” on Nationstar, but it did raise its target price to $35 on Wednesday. “We expect the market to begin discounting FY15 as we enter the back half of FY14 where we expect servicing pretax margins closer to 12 bps. Hence, we are increasing our price target to $35 as we look toward a more normalized earnings run rate in FY15,” Compass Point said in a client note.

“We are also adjusting our FY14E EPS to $3.18 from $3.64 and FY15E EPS to $4.25 from $4.50. If the company shows material progress towards its guidance, we would be more constructive on the stock.”

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