Compass Point Research & Trading is positive on PennyMac Financial Services (PFSI) raising their price target to $23 from $21 following the company’s release of its second quarter earnings.

“PFSI beat our operating EPS estimate and the consensus estimate in 2Q on the back of strong origination volumes and growing servicing portfolio,” says Kevin Barker in a client note. “PFSI has managed to consistently increase its market share in both the correspondent and retail origination channels over the past five years while most other non-bank originators struggle. Meanwhile, the company has quietly grown its servicing portfolio from $23B in early 2013 to $136B in 2Q15.”

He notes that PennyMac has seen solid servicing portfolio growth, with a 20%-plus earnings per share growth while most other fast growing servicer/originators struggle to break-even in their respective servicing segments.

“If PFSI can keep FHA indemnification expenses under control, we believe the company can produce 25-30% EPS growth over the next couple of years,” he says. “We are adjusting our FY15E EPS to $2.21 from $2.18 and FY16E to $2.80 from $2.63 due to higher net servicing fee revenue from a larger servicing portfolio and an increase in gain on sale income from higher originations volumes.”

PennyMac saw overall originations grew 57% from 1Q to $9.5 billion as PFSI grew market share during the second quarter. Retail originations increased 27% from the first quarter.

The strong volumes were supported by lower rates during the quarter, while PFSI also continued to benefit from the reduction in Federal Housing Administration mortgage insurance premiums from late 2014.