KBW Is Downgrading Stonegate Mortgage

In a report published Tuesday, Keefe, Bruyette & Woods analysts downgraded the rating on

from Outperform to Market Perform, while maintaining a price target of $12.50. The downgrade comes in the wake of recent run-up in the company's share price. Stonegate Mortgage continues to be fundamentally sound but its shares have surged more than 20 percent since the company reported its 4Q results. "SGM shares currently trade at 1.05x book value, which means limited upside to our $12.50 price target," the analysts mentioned. In the last two quarters, SGM had missed street estimates due to lower interest rate locks and the consequent reduced gain-on-sale income. However, the increase in applications in 1Q suggest a spike in interest rate locks in 1Q. "Stronger-than-expected mortgage volume or a smaller-than-expected MSR mark may act as catalysts and boost the company's performance in the near future," the analysts stated. Higher volumes and better gain on sale income is expected to boost Stonegate Mortgage's sequential operating EPS. The 1Q15 GAAP estimate has been reduced to $(0.32) per share to incorporate a $15 million MSR mark. The operating estimates for 2015 and 2016 have been left unchanged at $0.55 and $1.21, respectively.