Compass Point Cuts Price Target on Walter Investment Management (WAC) Following a 4Q Review

Compass Point reiterated a Sell rating on Walter Investment Corp. (NYSE: WAC), and cut the price target to $6.00 (from $10.00), following a review of the company's 4Q. WAC reported 4Q15 adjusted EPS loss of ($0.14) on revenue of $332M. This compares with consensus estimate for EPS of $0.34 on revenue of $340M.

Analyst Fred Small commented, "We reiterate our SELL on WAC and lower our price target from $10 to $6. We expect the dual mandate of cost cutting and delevering the balance sheet will prove more difficult than the market currently anticipates. Our updated FY16 and FY17 EPS estimates are $0.78 and $0.94, respectively. Our EPS estimates adjust for all management's add-backs, which makes us comfortable with a relatively low 6.0x P/E multiple. (See below for more detail.) Though shares appear cheap at 4.0x FY17 consensus EPS, the stock trades at 7.3x our FY17 EPS using WAC's adjustments and 57.2x our operating EPS estimate. WAC's valuation premium to the other special servicers has compressed over the past six months, though we still see downside of -13% to $6.00. As we have seen with the cost restructuring initiatives at other mortgage servicers (e.g., PHH and OCN), costs have been stickier than anticipated. We continue to recommend WAC as a hedge to long positions in other nonbank mortgage servicers that have clearer paths to profitability or less leverage."

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 $6.86 yesterday.

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