We issued an updated research report on Ocwen Financial Corp. (OCN) on May 21, 2014. The company reported lower-than-expected first-quarter results. Higher expenses, attributable to increased spending on technology and compliance, more than offset the top-line growth recorded during the quarter.
Further, the ongoing probe associated with Ocwen’s loan servicing capabilities and its business relations with certain publicly listed affiliates has negatively impacted investors’ confidence on the stock. Moreover, contraction in subprime mortgage servicing rights (MSRs) market which is one of the major sources of revenue for the company will tend to put pressure on the top line.
Also, Ocwen has been witnessing a rise in prepayment speed over the last few years. Though a rise in prepayment rate increases float income, a significant expansion will lead to lower revenues, higher amortization expenses and impairment charges related to the MSRs, which, in turn, will impact the company’s financial position adversely.
Additionally, surging expenses pertaining to the recent acquisitions further worsen the scenario. Since Ocwen continues to expand organically and through acquisition of MSRs, we do not foresee an immediate respite in this regard.
Following the earnings release, the Zacks Consensus Estimate for 2014 declined 3.4% to $1.13 per share over the last 30 days. For 2015, the Zacks Consensus Estimate decreased 1.3% to $1.50 per share over the same time period.
Ocwen presently has a Zacks Rank #5 (Strong Sell).
Stocks That Warrant a Look
Better-ranked stocks worth considering in the same sector include Home Loan Servicing Solutions, Ltd. (HLSS), Orchid Island Capital, Inc. (ORC) and Ellington Financial LLC (EFC). While Home Loan Servicing Solutions and Orchid Island Capital sport Zacks Rank #1 (Strong Buy), Ellington Financial carries a Zacks Rank #3 (Hold).