Mr. Cooper Group Inc.

COOP Details

Mr. Cooper Group Inc. (NASDAQ: COOP), together with its subsidiaries, is the largest non-bank servicer of residential mortgage loans in the US as per Inside Mortgage Finance. The company principally operates under Mr. Cooper and Xome brands.

Result Performance – For the Second Quarter Ended 30 June 2021

• Net income stood at $439 million and $4.85 per diluted share, equivalent to a ROCE of 56%. This includes a $135 million mark-to-market charge, which excludes fair value amortization of $45 million
• Pre-tax operating income stood at $227 million, equivalent to ROTCE of 23.1%. Excluding mark-to-market and other items, reported pre-tax operating income of $227 million
• Book value per share grew to $38.89 and Tangible book value per share grew to $37.24
• Completed the sale of Title365 for $500 million
• Unrestricted cash stood at $1.2 billion as of 1 July 2021

Key Data (Source: Company Reports) 

Risks

The company may not be able to successfully implement certain strategic initiatives. Further, the company is exposed to technical failures or cyber-attacks and may not achieve the anticipated return on investment.

Outlook:

The company is taking strategic actions, like the sale of Title365 and Reverse, to rationalize and simplify the existing business model, strengthen the balance sheet, and prepare for faster growth. Meanwhile, the servicing segment is focused on providing home loan experience to 3.5 million customers while concurrently strengthening asset performance for investors.

Valuation Methodology: Price/Book Value Based Relative Valuation (Illustrative)

Stock Recommendation:

The stock of the company rose by ~70.3% in 9 months and ~117.9% in one year. It has made a 52-week low and high of $16.77 and $39.255, respectively. We have valued the stock using a Price/Book Value (P/BV) multiple-based illustrative relative valuation and have arrived at a target price which reflects a decline of lower double-digit (in % terms). We have applied a slight discount to P/BV Multiple (NTM) (Peer Average) considering higher Debt to Equity ratio of 4.01x in Q2FY21 versus an Industry Median of 0.22x and a slide in EBITDA margin in Q2FY21 on YoY basis.

Considering the aforesaid facts and current trading levels, we suggest investors to liquidate the stock.

Hence, we give a “Sell” rating on the stock at the current price of $39.16 per share, up 2.01% on 6th August 2021.

Daily Price Chart

Source: REFINITIV, Note: The Purple Color Line Reflects RSI (14-Period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.