Mortgage-Backed Securities Are Unfairly Weighing On This Small Bank

• Walker & Dunlop, Inc. WD shares have been trending south in 2016, and are down 29 percent since January 4.
• Morgan Stanley’s Cheryl M. Pate upgraded the rating for the company to Overweight, with a price target of $31.
• The company is poised for robust growth and its shares warrant a better valuation, Pate stated.

The near 30 percent decline in Walker & Dunlop’s shares in 2016 on CMBS concerns is unwarranted since CMBS comprises merely 1 percent of the company’s volume, analyst Cheryl Pate mentioned. She added that the company appears poised for robust EPS growth through a strong GSE share in its core multifamily business, diversification and buybacks.

Walker & Dunlop’s core business is supported by a strong refinance pipeline and significant GSE participation. Pate expects the company to drive higher than industry origination volume growth as it continues to leverage its dominant position within the high margin GSE channel.

Pate noted that the company had a strong share with Fannie and Freddie: 11.9 percent and 10.8 percent, respectively, in 2015. This is a key driver of the company’s robust growth.

The company is also diversifying its earning through the services business, while managing capital opportunistically through its recently announced buyback of $75 million.

Walker & Dunlop’s stock currently trades at a discount to its peers. The analyst believes that the company’s defensible multifamily market focus, strong market share positioning with both Fannie and Freddie and balance sheet light business warrant a better valuation.