Ocwen's Heightened Regulatory Inquiry Lowers Growth Prospect
On Aug 22, 2014, we issued an updated research report on Ocwen Financial Corp. (OCN). The company continues to face heightened regulatory scrutiny regarding its business relations with several affiliate firms.
Apart from restricting Ocwen’s deal to acquire mortgage servicing rights (MSRs) from Wells Fargo & Co. (WFC), Benjamin Lawsky, the superintendent of New York’s Department of Financial Services, has also questioned the conflict of interests between Ocwen and certain publicly listed affiliates. Following an ongoing probe into the company’s loan-servicing capabilities, its deal with Wells Fargo has been kept on hold.
Further, contraction in subprime MSRs market, which is one of the major sources of revenue for Ocwen, will likely put pressure on the top line. Also, expenses have been surging as a result of increased spending on technology and compliance. Given the increase in compliance costs, we believe that expenses will continue to mount for the company.
In our opinion, if Ocwen fails to address these issues on time, its creditability will continue to suffer as investors will lose their confidence in the company’s financial stability and risk-management capabilities. Moreover, the company reported lower-than-expected results for second-quarter 2014 due to rise in other expenses.
Taking into account the above-mentioned issues, analysts have been bearish on Ocwen’s future prospects. Hence, the Zacks Consensus Estimate has been declining over the last 30 days. For 2014, the Zacks Consensus Estimate decreased 23.7% to $2.57 per share, while for 2015, it fell 26.0% to $3.44 per share.
Ocwen presently carries a Zacks Rank #5 (Strong Sell).
Stocks That Warrant a Look
Some better-ranked stocks in the same sector include Home Loan Servicing Solutions, Ltd. (HLSS) and PennyMac Financial Services, Inc. (PFSI). Both stocks carry a Zacks Rank #2 (Buy).
Read the Full Research Report on OCN
Read the Full Research Report on HLSS
Read the Full Research Report on WFC
Read the Full Research Report on PFSI
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