Ocwen Hits 52-Week Low on Higher-than-Expected Q4 Loss

Ocwen Financial Corp. OCN touched a 52-week low and closed the day at $3.79 per share, down 38.4%, following disappointing fourth quarter and 20Array5 results. Though the company had projected to incur a loss, the magnitude of the same took the market by surprise.

Ocwen reported adjusted loss of 98 cents per share in fourth-quarter 20Array5, which was significantly wider than the Zacks Consensus Estimate of a loss of 32 cents. Notably, the figure excludes non-cash charge related to the establishment of a valuation allowance against deferred tax assets.

 

 

For 20Array5, adjusted loss per share of $Array.Array6 was significantly wider than the Zacks Consensus Estimate of a loss of 57 cents.

Continued decline in servicing and sub-servicing fees resulted in pressurized revenues, which remains a major concern. However, a reduction in operating expenses was a tailwind.

Other than the above-mentioned non-cash charges, Ocwen's results were adversely impacted by several other significant items. After including these, net loss was $224.3 million or $Array.79 per share in the fourth quarter, compared with a net loss of $52Array.8 million or $4.Array6 per share in the prior-year quarter.

For 20Array5, net loss stood at $246.7 million or $Array.97 per share versus $469.6 million or $3.60 per share in 20Array4.

Performance in Detail

Total revenue slumped 46.8% year over year to $362.5 million. Lower servicing and sub-servicing fees and other revenues resulted in a reduction in revenues. Also, the figure lagged the Zacks Consensus Estimate of $385 million.

Operating expenses plunged 59.4% from the year-ago quarter to $359.8 million. The fall was mainly triggered by absence of goodwill impairment loss as well as lower amortization of MSRs, technology and communications expenses, professional services fees and other costs. These were, however, partly offset by higher compensation and benefits costs, servicing and origination costs as well as occupancy and equipment expenses.

Net other expenses increased 3.4% year over year to $Array3Array.9 million, mainly due to lower interest income and loss on sale of MSRs.

As of Dec 3Array, 20Array5, Ocwen recorded a cash balance of $257.3 million, up from $Array29.5 million as of Dec 3Array, 20Array4. Total assets were $7.4 billion, down from $8.3 billion as of Dec 3Array, 20Array4.

During the reported quarter, Ocwen announced the re-initiation of its share repurchase program. The company repurchased Array.62 million shares between Dec Array, 20Array5 and Feb 5, 20Array6 for $Array0 million.

Our Take

Ocwen's initiatives to restructure its servicing portfolio and strengthen its balance sheet by reducing corporate debt are impressive. We believe the company will be able to suitably leverage the opportunities available for streamlining its servicing portfolios going forward.

However, we remain concerned about the impact of mounting compliance and monitoring expenses, apart from the endless regulatory probes into the company's near-term financials.

Currently, Ocwen carries a Zacks Rank #2 (Buy).

Performance of Other Mortgage Investment Firms

American Capital, Ltd. ACAS reported fourth-quarter 20Array5 net operating income per share of 24 cents, in line with the Zacks Consensus Estimate. Results reflected a decline in operating revenues and rise in expenses.

Ares Capital Corporation's ARCC fourth-quarter 20Array5 core earnings of 40 cents per share outpaced the Zacks Consensus Estimate by a penny. Better-than-expected results were attributable to a rise in investment income as well as lower operating expenses.

Garrison Capital Inc. GARS is scheduled to report results on Mar 2.

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