KBW: Time To Buy PHH Corp

In a report published Monday, Keefe, Bruyette & Woods analyst Bose George upgraded the rating on

from Market Perform to Outperform, while reducing the price target from $28 to $21, following a massive decline in the company's share price. PHH's shares plummeted 35 percent after the company reported its 2Q earnings. Analyst Bose George said that the decline had reduced the company's market capitalization by "roughly $500 million." While regulatory risk had risen since the filing of the last 10-Q, which PHH highlighted in the quarter, "we believe that losses are unlikely to be as high as what is being implied in the stock price," George added. PHH announced a delay in its $250 million share repurchase, in view of the regulatory uncertainties and "a need to scale up to meet return objectives." The company also declared that it had "substantially completed its PLS negotiations." In the report Keefe, Bruyette & Woods noted, "We believe the shares now incorporate a discount to book value that is excessive relative to the risk. We raise the shares to Outperform but reduce our target to $21 to build in a meaningful cushion for potential regulatory costs." The EPS estimates for 2015 and 2016 have been reduced from ($0.05) to ($1.05) and from $2.25 to $0.85, respectively, to reflect "a slower timeline to profitability." Moreover, there is poor visibility into how the company would achieve the mortgage volumes needed, or $80 billion annually, to attain "more normalized profitability," George said.