On Friday, Piper Sandler increased its price target on Mr. Cooper Group Inc. (NASDAQ:COOP) shares to $106 from the previous $91, while maintaining an Overweight rating on the stock.
The adjustment came after Mr. Cooper Group announced a core earnings beat and its plans to acquire the residential Mortgage Servicing Rights (MSR) business and third-party origination platform from Flagstar. Following the announcement, the company's shares saw a significant uptick in the market, climbing nearly 7%.
The analyst praised Mr. Cooper Group's performance, highlighting the company's growth in tangible book value (TBV), which rose 17% year-over-year. Additionally, the management team confirmed its target for return on tangible common equity (ROTCE) between 14% and 18%.
The new price target reflects an increase in the valuation multiple to 1.3 times the estimated TBV for the second quarter of 2025, up from the previous 1.2 times, plus 10 times the EBITDA for its Xome subsidiary, with an 85% discount applied.
According to the firm, Mr. Cooper Group's current servicing portfolio positions it well in the existing market conditions. Moreover, there is an anticipation of potential additional gains if mortgage rates improve, which is expected to drive higher origination volumes and profitability for the company.
The revised valuation also takes into account the anticipated operational efficiencies and scale expansion resulting from the acquisition. The analyst believes that the company's servicing portfolio composition is poised to benefit significantly in a refinancing environment, providing further upside to its stock value.
In other recent news, Mr. Cooper Group Inc. reported a notable increase in pre-tax operating income in its latest quarter, rising 46% year-over-year to $219 million. The company's operating ROTCE also exceeded its 2025 target, reaching 15.3%.
Mr. Cooper announced a strategic acquisition of Flagstar's mortgage operations for $1.4 billion, a move expected to add 1 to 1.5 points to the company's return on equity. The acquisition will be funded through existing cash and MSR line draws.
Additionally, the company plans to continue its stock repurchase program, buying back approximately $50 million of stock per quarter. The servicing team's efficiency gains resulted in a 58% increase in pre-tax income, while the company's focus on refi recapture and deepening relationships with key sellers is expected to positively impact future earnings.
In anticipation of market changes, Mr. Cooper is preparing to expand its originations and expects an increase in CPRs by 2025. These recent developments underscore Mr. Cooper Group's strategic efforts to bolster its portfolio and enhance shareholder value.
InvestingPro Insights
In light of the recent price target increase for Mr. Cooper Group Inc. (NASDAQ:COOP) by Piper Sandler, InvestingPro data and tips provide additional context for investors. With a market capitalization of $5.97 billion and a remarkable revenue growth of 30.45% in the last twelve months as of Q2 2024, the company's financial health appears robust. The gross profit margin stands impressively at 85.88%, underscoring the company's efficiency in managing its costs.
InvestingPro Tips highlight that Mr. Cooper Group has not only shown a high return over the last year with a 58.19% price total return but is also trading near its 52-week high, at 96.66% of the peak. This suggests strong market confidence, which is further bolstered by the fact that analysts predict the company will be profitable this year, supported by its profitability over the past twelve months.
For those interested in deeper analysis, there are additional InvestingPro Tips available that delve into the company's performance over various timeframes and metrics. By using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these insights. With the next earnings date set for October 23, 2024, and a fair value estimation by analysts at $100, closely followed by InvestingPro's fair value of $101.98, investors have valuable benchmarks for making informed decisions.
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