Declining revenues and an industry under pressure are not the
descriptors you want to hear just before you invest in a company,
but unfortunatelyPHH Corporation
is experiencing both at the moment.
In its last earnings report, PHH reported a 6% decline in net
revenues overall along with a decline in several of their
business metrics that helped drive core earnings per share 77%
lower versus the same period a year ago.
PHH is unique in that it offers both outsourced private-label
mortgage solutions (originations mostly) and fleet management
(two very different businesses) with over 580,000 automobiles and
trucks under management in both sales and service fleets.
The mortgage side is struggling a bit as pre-tax core earnings
for the combined mortgage production and servicing segments was a
loss of $3 million for the first quarter, down from $45 million
in pre-tax core earnings in the fourth quarter of last year.
PHH's total loan servicing portfolio of $182 billion was down
2% from the first quarter of 2012. The company also stated that
the capitalized portion of their loan servicing portfolio totaled
a $137 billion in UPB at the end of the first quarter, down 9%
from the first quarter 2012 primarily due to a reduced
Their fleet business was a minor bright spot; Q1 fleet segment
profit was $21 million up $1 million from the fourth quarter of
2012. Fleet benefited some higher fee income and an improved cost
of funds, partially offset by lower syndication volume and
Even with the slight increase in year over year profits in the
fleet division, the company expressed concerns over future growth
in light of economic conditions.
Shares of PHH have been in a bearish channel since topping out
around the $24 dollar mark in late January, 2013.
Analysts have also been in their own "bearish channel" of sorts,
dropping FY2013 estimates down $1.15 or 415 to $1.65 and FY2014
estimates down by 15% to $2.44 in the last two months alone.
ESPs are generally flat which doesn't bode well for their
upcoming earnings surprises and FY2014 ESPs are negative, which
could mean that there is more room for those estimates to
A stagnant economy and increasing interest rates on the
horizon doesn't bode well for a company that depends on the
opposite to thrive. Increased competition in the mortgage
origination business is also a factor.
While all hope is not lost and 13 times forward earnings
doesn't seem all that high, a couple downward revisions and a
blip in the housing market could send this stock's shares
If you are on the hunt for a mortgage company, you might check
with a Zacks Rank of 1 or on the fleet management / logistics
side, researchRyder System Inc
which carries a Zacks Rank of 2; both should be a better bet at
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