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Nationstar significantly downgraded by analysts

FBR Capital, Oppenheimer and Barclays wary of nonbank’s future

In the wake of posting a loss in the first quarter, several analysts are downgrading Nationstar Mortgage Holdings (NSM) and questioning what the future holds for the nonbank.

Nationstar earlier this week reported a first-quarter loss of $48.3 million, after reporting a profit in the same period last year.

CEO Jay Bray was emphatic during the earnings conference call that he feels the company's future is still strong.

"Our capital and liquidity position continues to improve, and we believe this sets us up nicely to continue to capitalize on opportunities in the market," he said.

Yet, those same results led analysts from FBR Capital Markets, Oppenheimer and Barclays (BCS) to issue significant reductions to Nationstar’s price targets, and in one case, a downgrade from “market perform” to “underperform.”

The round-up of analyst reactions was passed along in several notes from Briefing.com.

FBR Capital downgraded Nationstar from “market perform” to “underperform,” and lowered its price target from $25 to $15. According to a Briefing.com note, FBR said “they continue to view (Nationstar) as the best high-touch, specialty servicer that remains well positioned to make further mortgage servicing rights acquisitions.”

But the FBR analysts cautioned that Nationstar is “transforming into a more traditional mortgage bank that suffers from MSR asset-related earnings volatility, as this quarter demonstrated.”

The FBR analyst added, “as such, price target is more appropriate to what they believe is a more traditional mortgage bank that does not hedge its MSR.”

Oppenheimer also lowered its target on Nationstar, although not to the level that FBR Capital did. According to a separate note, Oppenheimer lowered its price target for Nationstar from $32 to $24, citing three reasons: “first quarter was dreadful; presentation of servicing profitability was changed again and no reiteration of guidance.”

According to the Briefing.com note, the Oppenheimer analysts said that none of these “inspire confidence.”

The Oppenheimer analysts list Nationstar’s wholly owned subsidiary Solutionstar as an underappreciated value though. The analysts believe that Solutionstar’s potential growth as it transitions to a “premier real estate search and transaction platform” could help buoy Nationstar as a whole.

Meanwhile, Barclays lowered its target from $30 to $21, citing a need to increase servicing margins or lower acquisition costs to “near fire-sale levels” in order to meet a “mid-teens” return on equity.

Nationstar’s stock closed the week at $19.98, down its weekly opening price of $25.72.

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