Newly public UWM Holdings Corp (NYSE: UWMC) was trading lower Tuesday despite another Wall Street firm initiating bullish coverage on the Pontiac, Michigan-based mortgage firm.
The UWM Analyst: Credit Suisse analyst Douglas Harter initiated coverage of UWM with an Outperform rating and $10.50 price target.
The UWM Thesis: UWM is the largest wholesale mortgage lender and the second-largest residential mortgage lender in the U.S.
In the initiation note, Harter said UWM’s 4.8% dividend yield combined with its potential valuation upside make the stock an attractive play for investors at current levels.
In addition, he said UWM deserves to trade at a higher valuation than its mortgage originator peers.
“The combination of UWMC’s market leadership position and our outlook for continued share gains for UWMC in wholesale drives the higher target multiple,” Harter said.
The mortgage market has been on fire in the past year thanks to the Federal Reserve cutting interest rates to zero.
The Mortgage Bankers Association estimates total 2020 mortgage volume was around $3.2 trillion, potentially making it the biggest year since 2003.
United Wholesale Mortgage recently went public via a special acquisition company. A market frenzy over SPACs sent shares of UWMC as high as $14.38 in December ahead of the merger.
Shares have drifted steadily lower since that time and are now trading at $7.80.
Harter said UWM’s decision to go public helped improve its liquidity profile, allowing for faster volume growth, continuous investment in technology and more financial flexibility in the timing of sales.
At its current price, UWM shares trade at only 5.5 times Credit Suisse’s 2021 EPS estimate of $1.35. Harter is calling for 2022 EPS of $1.20.
Benzinga’s Take: At first glance, UWM shares may seem like an obvious value, but investors need to be cautious of value traps in the mortgage market.
It is extremely unlikely the 2021 mortgage market can repeat the boom of 2020, and most companies are facing some very difficult year-over-year comparisons.
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