PHH Corp (
delivers outsourcing solutions in private-label mortgage
originations and fleet management through its subsidiaries,
PHH Mortgage and PHH Arval.
PHH Mortgage provides outsourced solutions to financial
institutions, real estate companies, credit unions, corporations
and government agencies. PHH Mortgage is one of the top 10
originators of retail residential mortgages in the country. They
also provide home financing directly to consumers.
PHH Arval is a fleet management services provider for
corporate clients and government agencies throughout the US and
Canada. They currently have over 580,000 automobiles and trucks
under management in both sales and service fleets.
Disappointing Q3 Results and Guidance
PHH reported it third quarter results on November 6, 2013. The
quarter resulted in a net loss of $52 million or $0.90 per basic
share. Net operating earnings after excluding one-time items were
($0.12) per share, substantially short of the Zacks Consensus
Estimate of $0.24 per share.
While the fleet business delivered a 14% increase in segment profit
over the prior year; the mortgage business generated a loss due to
lower total loan margins, lower lock volume, and severance costs.
Mortgage production earnings decline was driven by
higher interest rates, declines in refinancings and a continued mix
shift to fee for service originations.
Tangible book value per share declined to $27.33 at September 30,
2013, down 3% from $28.14 at June 30, 2013.
Due to disappointing results, quarterly and annual estimates have
been revised sharply downwards in the past few days by analysts.
Zacks consensus estimate for the current quarter now stands at
$0.17 per share versus $0.20 per share, 30 days ago, while the
full-year consensus estimate is $1.58 per share now, down from
$2.53 per share. Further, the estimate for 2014 has gone down from
$1.91 to $1.74 per share.
The company has missed Zacks consensus estimates in all of last
four quarters, with an average negative surprise of 87.2%. Downward
estimates revisions sent PHH to a Zacks Rank # 5 (Strong Sell) on
November 12, 2013.
The Bottom Line
PHH is currently Zacks Rank # 5 (Strong Sell) stock and it also has
a longer-term recommendation of "Underperform". While the
company is trying to reposition its business model and reduce its
fixed cost structure, rising interest rates and declining mortgage
refinancings will continue to pose headwinds in the near term.
Investors may like to avoid the mortgage industry for the time
being in view of the near-term challenges lying ahead. The industry
currently has a Zacks Industry rank of 239 out of 265.
Among the plays on fleet management/logistics industry,
investors could consider Trinity Industries (TRN), which has a
Zacks rank of 1 (Strong Buy) and an outperform recommendation.
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