HLSS (MM)

On Feb 18, 2014, we issued an updated research report on Ocwen Financial Corp. (OCN). The company’s strategy to grow through acquisition of mortgage servicing rights (MSRs) bodes well for the future.

In Jan 2014, Ocwen announced a deal to acquire MSRs from Wells Fargo & Co. (WFC). However, the deal has been put on hold as regulatory authorities have doubts about the company’s capability to service such loans.

Nevertheless, we believe that Ocwen will be able to address all concerns, given its history of successfully integrating several similar acquisitions. In the past few years, the company has integrated Litton Loan Servicing acquired from The Goldman Sachs Group, Inc. (GS) and specified MSRs and related assets from other mortgage servicers.

Notably, mounting operating expenses remains a challenge for Ocwen. Despite acquisitions bringing more growth opportunities, these have resulted in increased costs and risks for the company.

Ocwen is scheduled to announce its fourth-quarter results on Feb 28. Our proven model projects that the company will miss the Zacks Consensus Estimate in the fourth quarter as it does not have the right combination of two key ingredients – positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

The Earnings ESP for Ocwen is -6.90%, while the company carries a Zacks Rank #5 (Strong Sell). Further, with respect to the earnings release, analysts have become more bearish on the stock. This is evident from a decline in The Zacks Consensus Estimate for 2013 by 4.1% to $2.09 per share.

Stocks That Warrant a Look

Another stock that is worth considering in this sector is Home Loan Servicing Solutions, Ltd. (HLSS), which has a Zacks Rank #2 (Buy).

 
GOLDMAN SACHS (GS): Free Stock Analysis Report
 
HOME LOAN SERVC (HLSS): Free Stock Analysis Report
 
OCWEN FINL CORP (OCN): Free Stock Analysis Report
 
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
 
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