Ocwen (OCN) Stock Plunges 8.7% On Q1 Preliminary Loss

Shares of Ocwen Financial Corporation (NYSE:OCN) decreased 8.7% following the release of the company’s preliminary first-quarter 2017 results. The probable reason for the price decline was wider-than-expected loss of 26 cents per share for the quarter. The Zacks Consensus Estimate was pegged at a loss of 22 cents.

However, the reported loss was lower than the prior-year quarter’s loss of 90 cents per share. Notably, the quarter included several significant items.

Decline in servicing and sub-servicing fees continued to put pressure on revenues, which remains a near-term concern. However, a decline in operating expenses, indicating continued efforts towards cost control, along with lower interest expenses acted as tailwinds.

The company reported net loss of $32.6 million, narrower than the loss of $111.2 million recorded in the prior-year quarter.

Revenues and Expenses Decrease

Total revenue for the quarter was $321.9 million, down 2.7% year over year. Lower servicing and sub-servicing fees were partially offset by a rise in net gain on loans held for sale and other revenues. However, the figure surpassed the Zacks Consensus Estimate of $300.6 million.

Total expenses decreased 15.9% year over year to $276.4 million. This was primarily due to a decrease in all expense components except technology and communications, and other expenses.

Also, net other expenses decreased 27.1% year over year to $76 million, primarily due to lower interest expense.

As of Mar 31, 2017, Ocwen recorded a cash balance of $268.3 million, up from $256.5 million as of Dec 31, 2016. Also, total assets were $7.9 billion, slightly up from $7.7 billion as of Dec 31, 2016.

Our Take

Ocwen’s initiatives to restructure servicing portfolio and strategy to diversify revenue sources should help in improving top line going forward. Also, a strong balance sheet should support its financials in the near term.

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among the other stocks in the same space, Essent Group Ltd. (NYSE:ESNT) witnessed a marginal upward earnings estimate revision for the current year in the last 60 days. Also, its share price is up 35.2% in the last six months.

The estimates for Walker & Dunlop, Inc. (NYSE:WD) remained stable for the current year in the last 60 days. Its share price was up 91.7% in the last six months.

TPG Specialty Lending, Inc. (NYSE:TSLX) witnessed an upward earnings estimate revision of nearly 1.1% for the current year in the last 60 days and its share price gained 18.7% in the last six months.

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