Neutral Stance on Ocwen - Analyst Blog


On Jun 4, 2013, we reiterated our long-term recommendation on Ocwen Financial Corp . ( OCN ) at Neutral based on its new business acquisitions and improved first- quarter results. However, we remain concerned about the company's mounting expenses.

Why the Neutral Stance?

Ocwen's first-quarter 2013 adjusted earnings came in at 64 cents per share, up significantly from 25 cents in the prior-year quarter. On a year-over-year basis, the results benefited from impressive top-line growth and a rise in interest income, partially offset by increased operating and interest expenses. Moreover, a strong balance sheet and favorable liquidity were the tailwinds for the quarter.

The Zacks Consensus Estimate for 2013 went down by 1.8% to $4.33 in the last 30 days. However, for 2014, the Zacks Consensus Estimate went up 1.2% to $5.22 per share over the same time frame. The company currently has a Zacks Rank #3 (Hold).

Over the last few years, Ocwen has expanded through acquisitions, mergers and alliances. Further, Ocwen's growth plan is focused on core operations, increasing fee-based revenues, intensifying unsecured debt collection business and diversifying its business through new ventures.

Alongside, Ocwen is focused on developing its Servicing segment by expanding the segment's capabilities through reverse mortgages and home equity lines of credit.

All these factors are expected to improve the company's revenue generation capacity in the long run.

On the other hand, Ocwen is exposed to increased obligation, several one-time expenses and allocated burden of probable losses due to its continuous acquisitions. Additionally, interest expenses are expected to rise based on increasing funding requirements. This is anticipated to pressurize the company's bottom line in the near-to-medium term.

Moreover, a persistently weak capital market, slow economic recovery, rising expenses and new regulations are expected to adversely affect the financials of the company going forward.

Other Stocks to consider

Some better performing stocks include Home Loan Servicing Solutions, Ltd . ( HLSS ) and NuStar GP Holdings, LLC ( NSH ) with a Zacks Rank #1 (Strong Buy) and Ellington Financial LLC ( EFC ) with a Zacks Rank #2 (Buy).

ELLINGTON FINL (EFC): Free Stock Analysis Report

HOME LOAN SERVC (HLSS): Free Stock Analysis Report

NUSTAR GP HLDGS (NSH): Free Stock Analysis Report

OCWEN FINL CORP (OCN): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: EFC , HLSS , NSH , OCN

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