A Contrarian Call: Compass Point Upgrades Banking Regulator Magnet Ocwen Financial
Fred Small of Compass Point Research believes Ocwen Financial Corp (NYSE: OCN)'s 54-percent plunge on Thursday created a buying opportunity. The analyst upgraded shares of Ocwen from Neutral to Buy but with a price target lowered from $5 to $3.50 for three main reasons.
1. 'Mispriced' Regulatory Risk
According to Small, the regulatory risk is "mispriced" following the "blizzard" of lawsuits and cease-and-desist orders from more than 20 states. As such, the probability of Thursday's "drama" creating ongoing concerns for Ocwen is low. In addition, the $1.5 billion estimate of Ocwen's escrow reconciliation and restitution isn't a real contingent liability.
2. New Residential Investment
Second, the analyst believes New Residential Investment Corp (NYSE: NRZ) is unlikely to transfer the majority of Ocwen's sub-servicing to another servicer because there are several risks involved in doing so.
3. Good Riddance To MSRs
Finally, Small suggested there is now a "complete deflation of recent optimism" surrounding Ocwen's ability to begin acquiring MSRs (mortgage servicing rights) in the near term. To this, the analyst simply states, "good riddance" as optimism about any future MSR purchases is no longer priced in to the stock and regulatory risk is also "over-baked."
Latest Ratings for NRZ
|Oct 2016||Nomura||Initiates Coverage On||Neutral|
|Oct 2016||Wedbush||Initiates Coverage on||Outperform|
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