Walker & Dunlop (NYSE: WD) makes money by helping real estate developers find the financing they need to build their projects. When times are good, real estate financing is a lucrative business, and Walker & Dunlop has done a good job over the long run of capitalizing on lucrative opportunities in the sector. However, there's been concern lately that the good times in real estate might finally come to an end in the near future.
Coming into Wednesday's first-quarter financial report, Walker & Dunlop investors were looking for solid revenue gains despite projecting some pressure on the bottom line. Instead, Walker & Dunlop had much stronger growth across its income statement, and things look poised for continued success throughout 2019.
Image source: Walker & Dunlop.
Walker & Dunlop springs forward
Walker & Dunlop's first-quarter results showed accelerating growth. Revenue jumped 27% to $187.4 million, blowing away calls for just 10% top-line growth. Net income climbed 20% to $44.2 million, and that produced earnings of $1.39 per share, comparing favorably against the consensus forecast among investors for $1.12 per share.
Walker & Dunlop's fundamental business metrics continued to look impressive. Total transaction volume for the quarter weighed in at $5.94 billion, up 23% from where it was a year ago. As we've seen recently, most of the company's gains came from its Fannie Mae and Freddie Mac loan portfolios, overcoming weakness in Ginnie Mae and brokered mortgage loans. Investment-related sales activity doubled from year-earlier levels, and Walker & Dunlop reported high demand in both the commercial and multifamily residential part of the business.
Growth in servicing was also impressive. Total managed assets climbed more than $13 billion to $89.1 billion, with the biggest pickup coming from brokered loans. Fannie Mae and Freddie Mac servicing was also up double-digit percentages. Given the rise in interest rates until recently, fewer early payoffs have extended servicing terms and made Walker & Dunlop's portfolio more lucrative.
Those strengths showed up in top-line results. Mortgage banking activities produced a 21% rise in segment revenue, while servicing fee revenue rose a more modest 9%. Walker & Dunlop saw escrow-related earnings and property sales broker fees more than double from the first quarter of 2018, and there weren't any significant weak spots anywhere in the business.
Can Walker & Dunlop keep up the pace?
CEO Willy Walker gave some color on his company's success. "Our unique ability to effectively compete with global firms," Walker said, "while providing our clients with the touch and feel of a small family company continues to differentiate us from the competition and power our financial results." The CEO pointed to Walker & Dunlop's renown for being a top workplace for employees as contributing to positive performance.
Just about the only sign of any concerns came from Walker & Dunlop's decisions with respect to capital allocation. The company continued to pay its $0.30-per-share quarterly dividend during the period and sees no likely disruptions to that payout in the future. However, even though the real estate financier authorized repurchases of up to $50 million in shares back in February, Walker & Dunlop didn't spend a dime on buybacks during the first quarter. Still, despite the fact that some investors won't be happy that they didn't see a buyback-related boost to per-share financial figures, others will note that Walker & Dunlop might simply have avoided making purchases at a time when its share price is relatively high.
Investors were comfortable with the results, and Walker & Dunlop stock rose almost 1% at midday following the announcement. It's always possible that the real estate market will turn lower at some point, but at least for now, Walker & Dunlop shareholders can feel fairly confident that at least the near-term future looks healthy for the real estate financing business.
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