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Bear of the day: Walker Dunlop (WD)

Overview

Zacks Rank #5 (Strong Sell) stock Walker & Dunlop WD provides commercial real estate financial services in the United States, with a primary focus on multifamily lending. The company also offers service loans for life insurance companies, commercial banks and other institutional investors as a loan broker. The Multifamily and FHA Finance groups of Walker & Dunlop are focused on lending to property owners, investors, and developers of multifamily properties across the country. The Capital Markets and Investment Services groups provide a broad range of advisory, financing, investment consulting and related services. Walker & Dunlop's Healthcare Finance group provides debt financing for healthcare properties. The company's principal Investments include origination, underwriting, execution and management of commercial real estate opportunities across property types and geographies within the continental United States. Walker & Dunlop, LLC is based in Bethesda, Maryland.

Rising Mortgage Rates are a Headwind

In just the past year, mortgage rates have gone from below 3% to north of 5%. Higher mortgage rates are a headwind for mortgage-related stocks such as Walker Dunlop because it makes buying a home much more expensive, killing demand for mortgages. Beyond slower demand, higher interest rates may increase the cost of borrowing for mortgage companies, which can eat into profitability. This occurs because mortgage companies often borrow money to fund their operations, and higher interest rates can increase their borrowing costs.

Fundamentals

The rise in rates is already having a significant impact on Walker Dunlop’s earnings. In the most recent quarter, EPS was -38% and revenue was -31% year-over-year. What’s worse is that Zacks Consensus estimates show that analysts expect the slow growth to continue. In the past 60 days, estimates have dropped for the second quarter and dull year.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Price and Volume Action

Walker Dunlop’s technical picture is reminiscent of its fundamental picture – not pretty. The stock got stuffed at its 200-day moving average and is testing multi-month lows.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

While the stock can bounce in the short-term, the intermediate-term is less favorable.

Takeaway

High mortgage rates negatively impact demand for mortgages, lowering profits and revenue for companies such as Walker Dunlop. Combined with the ugly macro environment and the uncertainty in the banking sector, WD shares should be avoided for now.

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