Ocwen Misses on Bottom Line - Analyst Blog
March 01 2013 - 4:14AM
Zacks
Ocwen Financial Corp (OCN) reported
fourth-quarter 2012 earnings of 47 cents per share, missing the
Zacks Consensus Estimate of 51 cents. However, this compares
favorably with the prior-year quarter earnings of 8 cents.
For 2012, Ocwen’s earnings came in at $1.31 per share, missing the
Zacks Consensus Estimate of $1.44 per share. However, it came in
better than the year-ago earnings of 71 cents.
Augmented top line and stable balance sheet position were the
positives for the quarter. However, increased operating and
interest expenses, along with lower interest income, were the
primary dampeners.
Ocwen’s net income stood at $65.3 million, striding way ahead of
$9.7 million in the prior-year quarter. In 2012, net income was
recorded at $180.9 million, substantially increasing from $78.3
million last year.
Behind the Headlines
Ocwen’s total revenue witnessed an impressive growth. It surged
50.9% year over year to $236.4 million. The improvement was the
result of rise in servicing and sub-servicing fees, process
management fees and other income. Total revenue also outpaced the
Zacks Consensus Estimate of $228.0 million by 3.7%.
For 2012, total revenue stood at $845.0 million, up 70.4% from
2011. Total revenue also surpassed the Zacks Consensus Estimate of
$800.0 million by 5.6%.
Operating expenses stood at $99.1 million, up 9.5% from the
prior-year quarter. The hike was driven by higher amortization of
mortgage servicing rights, servicing and origination costs,
technology and communications expenditure, occupancy and equipment
costs as well as other expenses, partly offset by lower
compensation and benefits costs.
Interest income declined 15.1% year over year to $1.9 million,
while interest expenses leaped 30.7% from the prior-year quarter to
$59.8 million.
Income from operations stood at $137.3 million, expanding
substantially from $66.1 million in the year-ago quarter.
Balance Sheet and Other Developments
As of Dec 31, 2012, Ocwen recorded cash of $220.1 million, up 52.6%
as of Dec 31, 2011.
During the third quarter, Ocwen completed 23,926 loan
modifications, inclusive of Homeward residential share (Home
Affordable Modification Program accounted for 33.0% of
modifications).
However, total assets came in at $5.6 billion, surging 20.0% from
the year-ago period. Total stockholder equity came in at $1.6
billion, climbing 20.0% from the prior-year quarter.
Acquisitions
In Feb 2013, Ocwen acquired Residential Capital LLC’s (ResCap)
mortgage-servicing rights (MSRs) in collaboration with
Walter Investment Management Corp. (WAC). Ocwen
shelled out $2.1 billion for the deal, subject to post-closing
adjustments.
During the reported quarter, Ocwen completed the previously
announced acquisition of Homeward Residential Holdings Inc. – an
integrated mortgage firm with prime lending and mortgage servicing
operations – from WL Ross & Co. LLC. The acquisition was
announced in Oct 2012.
Our Take
Although the near-term outlook remains cautious owing to market
volatility and subprime MSR market contraction, Ocwen remains
committed to new business acquisitions and loan modifications.
These will likely convert into increased profitability over time.
Additionally, the company’s recent acquisitions would benefit its
financials in the long term.
Furthermore, with the ongoing deterioration of home prices, Ocwen
might get even more opportunities to acquire distressed servicing
portfolios at low prices. Despite these positives, the persistently
weak capital market, slow economic recovery and continuously rising
operating expenses remain our major concerns.
Ocwen currently carries a Zacks Rank #3 (Hold). Stocks from the
same sector worth recommending include Home Loan Servicing
Solutions, Ltd. (HLSS) and Nationstar Mortgage
Holdings Inc. (NSM). Both these companies carry a Zacks
Rank #1 (Strong Buy).
HOME LOAN SERVC (HLSS): Free Stock Analysis Report
NATIONSTAR MTGE (NSM): Free Stock Analysis Report
OCWEN FINL CORP (OCN): Free Stock Analysis Report
WALTER INV MGMT (WAC): Free Stock Analysis Report
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