With the sale of its fleet business finally behind it, PHH Corporation (PHH) is positioned to succeed in the future, FBR Capital Markets said in a note to clients this week.
FBR thinks that the now that the fleet management sale is over and done with, PHH is ready for the next phase of its development as a company.
“We reiterate our ‘Outperform’ rating and $28 price target on shares of PHH Corporation following the company's 3Q14 earnings release,” FBR said.
“This remains a challenging operating environment for PHH as the company weathers a smaller mortgage market and executes on its restructuring plan. That said, the company has already made progress on its strategic initiatives as it has repurchased shares, brought its debt balances into its targeted range, and is in the process of renegotiating PLS contracts.”
FBR said that it believes the success of these initiatives will be key for determining the future profitability of the company, especially as management has already guided to negative core earnings through mid-2015.
“I am pleased with the progress we have made in executing our capital and operating initiatives to re-engineer and grow our business,” said Glen Messina, president and CEO of PHH Corporation said this week.
“We remain focused on our re-engineering efforts, which we expect to deliver up to $225 million in annualized operating benefits driven by expense reduction actions and achieving our Private Label contract renegotiation objectives,” he added. “We expect to generate an aggregate of $175 million of the annualized operating benefits from expense reduction actions, the majority of which is expected to be realized in the next 12 months.”
FBR said that because of PHH’s initiatives, it is increasing its 2014 earnings per share estimate from $1.35 to $1.63.
“Management reiterated that it expects to realize $225 million of operating benefits from its reengineering plans, which includes $175 million of expense reductions that should come in over the next six months to two years,” FBR said.
“We note that the company will need to invest $160 million to realize these expense saves and, as such, will not get the full benefit for four to eight quarters. We continue to believe that expense discipline is necessary for the company to realize sustained profitability.”