Walter Investment Corp (WAC) Added to Compass Point Focus List as a 'Sell'

Compass Point analyst Kevin Barker reiterated a Sell rating and $9 price target on Walter Investment Corp. (NYSE: WAC) and added to the Compass Point Focus List based on near-term and longer-term earnings headwinds the company is likely to face due to declining gain on sale margins and elevated servicing expenses.

Barker commented, "With the second quarter wrapped up, we believe WAC is likely to face outsized pressure in the near-term due to (1) lower gain on sale margins due to contraction of the mortgage primary-secondary spread, (2) declining interest rate locks (main driver of origination revs) due to higher rates, (3) elevated MSR amortization as refinance originations remain in-line with 1Q, and (4) a material decline in interest income following the sale of residual trusts. We believe the recent rally in the stock is un-justified given these headwinds and the stock is likely to significantly under-perform peers while trading at 2.3x TBV v. the peer median of 1.1x. Over the long-term, we expect the market to trade the stock closer to TBV as HARP originations become a smaller portion of the overall earnings mix and the servicing segment struggles to produce significant positive earnings due to elevated amortization expense."

For an analyst ratings summary and ratings history on Walter Investment Corp. click here. For more ratings news on Walter Investment Corp. click here.

Shares of Walter Investment Corp. closed at $22.87 yesterday.

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