Compass Point Downgrades Flagstar Bancorp (FBC) to Neutral

Compass Point downgraded Flagstar Bancorp (NYSE: FBC) from Buy to Neutral with a price target of $20.00 (from $24.00) following Q1 results.

Analyst Kevin Baker said, "Although we believe the company is well capitalized and reserved for future credit losses, the return on equity does not justify paying more than TBV, and we do not expect a sale of the company will garner much more than $20-21 per share. Given the uncertainty surrounding a potential takeout, we believe there is not enough reward to justify taking the risk of further credit losses and being subject to the volatility of mortgage banking. With that being said, we do acknowledge there is an argument to be made that FBC is now over-reserved for credit losses associated with its residential mortgage portfolio, but it will take over a year before we get clarity on the true credit losses coming from that portfolio. Given that FBC screens as being the most sensitive to originations and gain on sale margins, earnings are likely to be volatile over the next year as the company attempts to hold market share in a very competitive mortgage market. We would be more constructive on the stock at $16/share. We are lowering our FY14E EPS to ($0.87) from $1.39 and FY15E EPS to $1.24 from $1.80 due to higher provisions and lower fee income."

For an analyst ratings summary and ratings history on Flagstar Bancorp click here. For more ratings news on Flagstar Bancorp click here.

Shares of Flagstar Bancorp closed at $18.70 yesterday.

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