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

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