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Walter Investment shares rise on upgrade

BOSTON (AP) -- Shares of Walter Investment Management Corp. on Wednesday recovered some of the previous day's sharp decline after a Sterne Agee analyst upgraded the stock, calling the decline an overreaction.

THE SPARK: Analyst Henry J. Coffey Jr. upgraded his rating of the mortgage servicer and originator to "Buy" from "Neutral," while also lowering his earnings estimates in recognition of the company's update to its financial outlook.

After markets closed on Monday, Walter Investment issued fourth-quarter earnings that were below analysts' expectations. The company, based in Tampa, Fla., posted adjusted earnings of 64 cents per share. Analysts surveyed by FactSet had expected adjusted earnings of 66 cents per share, on average.

Walter Investment also issued an earnings outlook that was below expectations, and indicated that the number of borrower prepayments will be greater than previously expected on residential mortgages that the company began servicing as a result of recent acquisitions. Shares of Walter Investment tumbled nearly 21 percent on Tuesday.

THE ANALYSIS: In a note to clients, Coffey called Tuesday's sell-off "clearly unwarranted." He cited the stock's sharp price decline as the catalyst for upgrading his rating of the shares. He said that mortgage prepayments are expected to decline to more normal levels next year, and expressed confidence that Walter Investment "will continue to maximize the realizable value associated with recent acquisitions."

SHARE ACTION: While still far below their level before Tuesday's sharp decline, shares of Walter Investment climbed $1.11, or 3.4 percent, to $34.09 in midday trading. The stock has traded in a range of $17.87 to $49.99 over the past 52 weeks.