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Here's Why Ocwen (OCN) Shares Gained 3.7% Despite Q4 Loss

Zacks Equity Research

Shares of Ocwen Financial Corporation OCN increased 3.7% in the after-market trading, following the release of its fourth-quarter and full-year 2016 results. The probable reason for the price rise was lower-than-expected loss of 8 cents per share for the quarter. The Zacks Consensus Estimate was a loss of 18 cents.

Moreover, the reported loss was lower than the prior-year quarter’s loss of $1.79 per share. Notably, the quarter included several significant items.

A fall in operating expenses, indicating continued efforts toward control costs, along with lower interest expenses acted as tailwinds. However, decline in servicing and sub-servicing fees continued to put pressure on revenues, which remains a near-term concern.

The company reported net loss of $10.4 million, narrower than a loss of $224.2 million recorded in the prior-year quarter. Also, for 2016, net loss was $199.8 million or $1.61 per share, narrower than $247 million or $1.97 per share reported in the previous year. Further, the reported figure was lower than the Zacks Consensus Estimate, which was a loss of $1.70 per share.

Revenues and Expenses Down

Total revenues for the quarter came in at $323.9 million, down 10.6% year over year. Lower servicing and sub-servicing fees was partially offset by a rise in net gain on loans held for sale and other revenues. Also, the figure lagged the Zacks Consensus Estimate of $341.7 million.

For 2016, total revenues were $1.39 billion, down 20.3% year over year. However, the reported figure marginally outperformed the Zacks Consensus Estimate of $1.38 billion.

Total expenses decreased 33.9% year over year to $237.9 million. This was primarily due to a fall in all expense components except amortization of mortgage servicing rights (MSR).

Also, net other expenses decreased 27.1% year over year to $96.2 million, mainly due to lower interest expense and net gain on sale of MSRs.

As of Dec 31, 2016, Ocwen recorded a cash balance of $256.5 million, down from $257.3 million as of Dec 31, 2015. However, total assets were $7.7 billion, up from $7.4 billion as of Dec 31, 2015.

Our Take

Ocwen’s initiatives to restructure servicing portfolio and strategy to diversify revenue sources should help in improving top line going forward. Also, as the company’s continued reorganization of servicing portfolio will alleviate investors’ concerns over its financial performance and stability in the long run.

However, we remain concerned about the impact of mounting compliance and monitoring expenses, apart from the endless regulatory probes into the company’s near-term financials.

Ocwen Financial Corporation Price, Consensus and EPS Surprise

Ocwen Financial Corporation Price, Consensus and EPS Surprise | Ocwen Financial Corporation Quote

Currently, Ocwen carries a Zacks Rank #3 (Hold).

Among the better-ranked stocks in the same space, Essent Group Ltd. ESNT has witnessed an upward earnings estimate revision of 7.1% for the current year over the past 60 days. Also, its share price is up 32% in the past six months. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Walker & Dunlop, Inc. WD also sports a Zacks Rank #1 and has witnessed an upward earnings estimate revision of 20.1% for the current year over the past 60 days. Moreover, its share price is up 48.8% in the last six months.

TPG Specialty Lending, Inc. TSLX carries a Zacks Rank #2 (Buy). It has witnessed an upward earnings estimate revision of nearly 1% for the current year for the past 60 days and its share price has gained 6.2% in the last six months.

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Ocwen Financial Corporation (OCN): Free Stock Analysis Report
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