After recent meetings with William Erbey, chairman of Ocwen, and the newly appointed CFO, Michael Bourque, Compass Point Trading & Research said, “Ocwen has often mentioned it would consider expanding its business outside of distressed mortgage servicing and into businesses where it believes it can sustain a ‘sustainable competitive advantage.’”
“We believe the company is close to announcing it will be expanding into another area beyond mortgage servicing, such as title insurance or other consumer servicing. How it takes shape remains to be seen, but we would expect the new initiatives to be announced by 2Q14 earnings,” Compass Point added.
Previously, HousingWire reported that most nonbank financial companies operating in the mortgage space have significantly higher levels of tangible capital and lower risk-weighted assets than insured depository institutions.
However, right now Ocwen said it has little desire to make a major acquisition given equity market valuations are elevated at this point in the cycle, in addition to its deal with Wells Fargo (WFC) on indefinite hold.
Compass Point said it reiterated its buy rating and $43 price target on Ocwen. This is based on the expectation of earnings per share growth over the long-term as the moratorium on material bulk servicing acquisitions is lifted and the company utilizes its significant cash flow generation to either buyback stock or make accretive acquisitions.
But first Ocwen has to get over a few financial hurdles and is likely to see increased expenses due to compliance with the National Mortgage Settlement and the new CFPB servicing rules in the near-term.
As a result, Compass Point adjusted Ocwen’s second-quarter earnings per share to 80 cents per share from 84 cents per share, FY14E EPS to $3.29 from $3.42 and FY15E EPS to $4.65 from $4.80 to take into account some of the near-term expense headwinds and slightly lower origination volumes.