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Ocwen (OCN) Swings to Earnings in Q3, Stock Surges 16.2%

Zacks Equity Research

Shares of Ocwen Financial Corp. OCN jumped 16.2% in after-market trading, following the release of its third-quarter 2016 results. An unexpected earnings of 8 cents per share (the first since second-quarter 2015) was the primary reason for the price rise.

The Zacks Consensus Estimate was a loss of 44 cents, while the prior-year quarter had recorded a loss of 53 cents. The reported quarter earnings included several significant items.

Fall in operating expenses, indicating continued efforts to control costs, along with lower interest expenses acted as tailwinds. However, decline in servicing and sub-servicing fees put pressure on revenues, which remain a major concern.

Net income was $9.5 million, compared with net loss of $66.8 million in the year-ago quarter.

Lower Costs Supported Results as Revenues Declined

Total revenue fell 11.2% year over year to $359.4 million. Lower servicing and sub-servicing fees and gain on loans held for sale were partially offset by improvement in other revenues. However, the figure beat the Zacks Consensus Estimate of $354.3 million.

Total expenses plunged 29.9% from the year-ago quarter to $271.7 million. The decline reflected reduction in the size of the servicing portfolio and the progress in ongoing cost-improvement efforts.

Net other expenses increased 16.8% year over year to $85.4 million, mainly due to higher other expenses, partially offset by lower net gains on sale of MSRs and decrease in interest expense.

As of Sep 30, 2016, Ocwen recorded a cash balance of $263.5 million, up from $257.3 million as of Dec 31, 2015. Total assets were $7.6 billion, up from $7.4 billion as of Dec 31, 2015.

Our Take

Ocwen’s initiatives to restructure its servicing portfolio and strengthen its balance sheet by reducing corporate debt are commendable. We believe that the company will be able to suitably leverage on the opportunities available for streamlining its servicing portfolios, going forward.

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 FINL CORP Price, Consensus and EPS Surprise


OCWEN FINL CORP Price, Consensus and EPS Surprise | OCWEN FINL CORP Quote

Currently, Ocwen carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other mortgage investment firms, Nationstar Mortgage Holdings Inc. NSM will announce results on Nov 2, PennyMac Financial Services, Inc. PFSI on Nov 3 and PHH Corp. PHH on Nov 8.

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