Ocwen Financial (OCN) PT Cut to $6 at Compass Point on Margins Worries

Compass Point analyst Kevin Barker reiterated a Sell rating and lowered his price target on Ocwen Financial Corp (NYSE: OCN) to $6.00 (from $6.50). The analyst said margins will continue to contract.

Barker commented, "We have lowered our price target to $6.00 as it is our estimate for trough TBV excluding the deferred tax asset (DTA) and $200mm of regulatory/litigation charges. We exclude the DTA from book value due to our expectation for OCN to report operating losses for the next several quarters and only estimate $200mm of regulatory/litigation charges as that represents our near-term expectation. Longer-term, we still believe OCN could incur around $500mm of charges (our previous assumption in valuing the stock), but that amount of charges would likely be spread over several years. OCN experienced a significant decline as the stock was strong into the earnings release and the company guided to $150mm+ cost saves when the market was likely expecting savings in the $300-600mm. Considering the average servicing portfolio is likely to decline ~30% from 2Q15 to FY16, we believe OCN is likely to report more than $150mm of cost saves (as is reflected in our estimates), but we still struggle to see how the company will report a profit even if run rate expenses decline by $300mm. If we were to look out longer-term, the company will face revenue/margin headwinds from the expiration of HAMP and HARP and there remains the potential for New Residential (NRZ - Buy, $19 PT -Stewart) to transfer servicing away from OCN if the company's servicer rating at S&P remains at "below average". Bottom-line, the stock should trade at a material discount to TBV. We are adjusting our FY15E operating EPS to ($0.53) from $0.78 and FY16E operating EPS to ($0.37) from $0.71."

For an analyst ratings summary and ratings history on Ocwen Financial Corp click here. For more ratings news on Ocwen Financial Corp click here.

Shares of Ocwen Financial Corp closed at $8.47 yesterday.

You May Also Be Interested In

• Growth isn't weak enough to truly undercut inflation pressures - BMO
• Alpine Income Property Trust (PINE) PT Lowered to $18 at Jones Trading
• Piper Sandler Downgrades Magnolia Oil & Gas Corp. (MGY) to Neutral