On Thursday, Barclays reiterated its Overweight rating on Mr. Cooper Group Inc. (NASDAQ:COOP) stock while maintaining the price target at $108.00. The affirmation of the rating follows the company's recent quarterly performance, which the analyst described as strong across multiple fronts.
The report highlighted that Mr. Cooper Group's business model proved effective during rate rallies, as the production income was able to more than compensate for the servicing headwinds. Despite the servicing sector performing better than expected, the stock underperformed in the market on Wednesday.
The stock's decline of 4.1% on Wednesday was contrasted with the S&P 500's smaller drop of 0.9%. The analyst attributed this underperformance to several factors: high expectations prior to the earnings release, a slight miss on tangible book value per share, and an increase in correspondent originations, which typically have lower margins compared to direct-to-consumer channels.
Barclays suggests that investors should look beyond these short-term concerns and focus on the company's future prospects. The firm anticipates an approximate 200 basis point expansion in return on tangible common equity (ROTCE) by 2025 and a 30% growth in earnings per share (EPS). Based on these estimates, the analyst recommends buying shares of Mr. Cooper Group, especially after the recent dip in the stock price.
Mr. Cooper Group's ability to navigate the challenges of rate fluctuations and its potential for significant ROTCE and EPS growth by 2025 are key highlights from the analyst's comments. The firm's outlook remains positive on the stock, encouraging investors to consider the long-term growth trajectory despite the short-term market reactions.
In other recent news, Mr. Cooper Group, a prominent home loan servicer and originator, reported a robust pre-tax operating income of $246 million in the third quarter of 2024. The company's tangible book value per share saw an 11% year-over-year increase, reaching $69.93. The growth was largely attributed to the expansion of its servicing portfolio to $1.2 trillion and a strong Originations segment performance, resulting in $69 million in pre-tax income.
The company's upcoming acquisition of Flagstar, expected to conclude in the fourth quarter of 2024, is a significant development. This move will position Mr. Cooper Group as the industry's largest customer franchise, serving over 6 million customers.
In other developments, the company anticipates a pre-tax servicing income between $285 million and $305 million for Q4 2024. The firm also revealed a strong liquidity position of $4.1 billion and a robust balance sheet with a capital ratio of 27.9%. These recent developments underscore Mr. Cooper Group's strong financial performance and strategic growth initiatives.
InvestingPro Insights
Recent InvestingPro data and tips offer additional context to Barclays' analysis of Mr. Cooper Group Inc. (NASDAQ:COOP). The company's P/E ratio (adjusted) of 9.05 for the last twelve months as of Q3 2024 aligns with an InvestingPro Tip highlighting that COOP is "Trading at a low P/E ratio relative to near-term earnings growth." This supports Barclays' view on the company's growth potential.
Moreover, COOP's strong financial performance is reflected in its impressive revenue growth of 16.66% and EBITDA growth of 124.88% over the last twelve months. These figures underscore the company's ability to generate substantial returns, as evidenced by the InvestingPro Tip noting a "High return over the last year."
Despite the recent 9.24% price decline over the past week, which correlates with the analyst's observation of the stock's underperformance, COOP has demonstrated resilience with a 62.61% price total return over the past year. This long-term performance aligns with Barclays' recommendation to focus on the company's future prospects rather than short-term fluctuations.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Mr. Cooper Group, providing a broader perspective on the company's financial health and market position.
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