Nomura Securities Starts PennyMac Financial (PFSI) at Buy
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Nomura Securities initiates coverage on PennyMac Financial (NYSE: PFSI) with a Buy rating and a price target of $20.00.
Analyst Brock Vandervliet commented, "Since its 2012 IPO, PFSI has been very successful in adapting to a very different environment against a mortgage sector backdrop that experienced powerful fundamental shifts and regulatory changes. This adaptation, particularly with respect to government loan origination and servicing, created distinct opportunities for PFSI. However, unlike those peers more focused on bulk servicing acquisitions, PFSI is organically oriented. The key to PFSI is a “one-two punch.” One, a successful transition to offset a likely decline from record origination levels (as interest rates rise) with a combination of wider consumer direct origination and the launch of the Wholesale channel. Two, as interest rates drift higher, servicing earnings should increase materially as negative fair value marks subside. This should allow PFSI to transition from earnings dominated by loan production to a mix of production and servicing. We carry 2016-18 EPS estimates of $2.51, $2.88, and $3.04 vs. consensus of $2.64, $2.87, and $2.93, respectively. With the shares more than 7% off their recent highs and trading at just 5.7x our 2017 EPS estimate, in the lower third of their historical range, we believe PFSI offers compelling upside."
Shares of PennyMac Financial closed at $16.31 yesterday.
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