Declining
revenues and an industry under pressure are not the descriptors you want to hear
just before you invest in a company, but unfortunately PHH Corporation PHH is
experiencing both at the moment.
In
its last earnings report, PHH reported a 6% decline in net revenues overall
along with a decline in several of their business metrics that helped drive core
earnings per share 77% lower versus the same period a year ago.
Earnings
Struggles
PHH is unique in that it offers both
outsourced private-label mortgage solutions (originations mostly) and fleet
management (two very different businesses) with over 580,000 automobiles and
trucks under management in both sales and service fleets.
The
mortgage side is struggling a bit as pre-tax core earnings for the combined
mortgage production and servicing segments was a loss of $3 million for the
first quarter, down from $45 million in pre-tax core earnings in the fourth
quarter of last year.
PHH's
total loan servicing portfolio of $182 billion was down 2% from the first
quarter of 2012. The company also stated that the capitalized portion of their
loan servicing portfolio totaled a $137 billion in UPB at the end of the first
quarter, down 90% from the first quarter 2012 primarily due to a reduced replenishment
rate.
Their
fleet business was a minor bright spot; Q1 fleet segment profit was $21 million
up $1 million from the fourth quarter of 2012. Fleet benefited some higher fee
income and an improved cost of funds, partially offset by lower syndication
volume and remarketing gains.
Even
with the slight increase in year over year profits in the fleet division, the
company expressed concerns over future growth in light of economic conditions.
Turnaround?
Shares
of PHH have been in a bearish channel since topping out around the $24 dollar
mark in late January, 2013. Analysts
have also been in their own "bearish channel" of sorts, dropping FY2013
estimates down $1.15 or 415 to $1.65 and FY2014 estimates down by 15% to $2.44
in the last two months alone.
ESPs
are generally flat which doesn't bode well for their upcoming earnings surprises
and FY2014 ESPs are negative, which could mean that there is more room for
those estimates to fall.
A stagnant economy and increasing interest
rates on the horizon doesn't bode well for a company that depends on the
opposite to thrive. Increased
competition in the mortgage origination business is also a factor.
While all hope is not lost and 13 times forward
earnings doesn't seem all that high, a couple downward revisions and a blip in
the housing market could send this stock's shares further.
If you are on the hunt for a mortgage
company, you might check out Nationstar Mortgage NSM with a Zacks Rank of 1 or on
the fleet management / logistics side, research Ryder System Inc R, which carries
a Zacks Rank of 2; both should be a better bet at the moment.
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NATIONSTAR MTGE (NSM): Free Stock Analysis Report
PHH CORP (PHH): Free Stock Analysis Report
RYDER SYS (R): Free Stock Analysis Report
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