Investing

Fintel Initiates Coverage of US Largest Non-Bank Financial Lender Mr. Cooper Group and Here Is Why

Ben Ward

Published: January 23, 2023 3:29 am

Last Updated: January 23, 2023 12:42 pm

Fintel has begun to cover a new stock this week which is the largest non-bank loan servicer in the U.S. called Mr. Cooper Group (US:COOP). COOP’s share price ended flat for 2022  but fluctuated many times throughout the year as the stock consolidated more than 400% of gains made during the key pandemic years.

Mr Cooper is a fully integrated mortgage originator and servicer that grew from a small origination unit of a homebuilding firm into one of the largest non-bank mortgage finance companies that currently services 4.1 million customers.

The group uses customer-centric servicing, origination and transaction-based services primarily to single-family residences across the United States.

It operates two primary brands are called Mr Cooper and Xome.

The Mr Cooper segment was formerly known as Nationstar Mortgage Holdings and was founded in 1994. Mr Cooper originates and services loans for homeowners.

The Xome segment provides technology and data solutions to the real estate market and is one of the largest house search engines globally which includes an online auction feature. Xome is currently the only platform that digitally connects every major touch-point in the real estate process that focuses on transparency for consumers.

The Fintel quant platform first identified that COOP had a high quant QVF (quality + value + fund sentiment) score of 88.32 which means the stock is screening as an attractive company trading on a reasonable valuation with strong cash flow generation and institutional interest

Mr Cooper Group has the 20th highest QVF score when screened against all other global publicly traded stocks.

But what does this score mean and why does it make the stock look like an attractive investment to consider in 2023?

The high QVF score is based on three factors with the first being quality. COOP has a quality score of 92.03 which is explained by the firm’s strong cash flow generation from operating activities.

Fintel is attracted to COOP’s growth in operating cash return on investor capital (OCROIC) which has a current 3-year average ratio of 0.15. Over the last year, COOP has seen 11.83% growth in operating cash flows during the period.

Although Cooper Group’s revenues retreated over 2022, the firm was able to grow cash from operating activities to its largest level in history. On a trailing basis (TTM), COOP’s cash from operating activities swung from -$2.3 billion in the September quarter of 2021 to $6.5 billion in the same quarter of 2022.

This has provided COOP with the flexibility to pursue capital management activities such as ongoing share buybacks including a new $200 million authorization announced at the most recent Q3 result in October.

The second bullish indicator is the 87.54 value score with the quant calculation based on a 3-year average EBIT/EV ratio of 0.13. This quant ratio measures the levels of pre-tax profits that are generated per share for investors. This ratio has grown significantly over the pandemic as the company scaled up growth and profitability.

The company currently has a market capitalisation of around $3.15 billion and trades on a current PE ratio (price-to-earnings) of ~3x.

The final factor contributing to the score is the Fund sentiment score of 72.87. which has been driven by 0.51% growth of institutional ownership on the register. The score ranks COOP in the top 13% of 36,168 screened global securities.

COOP currently has 594 institutional investors on the register that collectively own a total o 68.57 million shares or about 90% of the total float.

When analysing sentiment from sell-side institutions, Fintel’s consensus target price of $53.62 suggests there could be as much as 20% upside to the share price this year. The consensus target has risen slightly from early December when it was $53.48.

Analysts at institution Credit Suisse recently raised estimates for COOP following the last third quarter result which included updated guidance for 2023.

Douglas Harter has an ‘outperform’ recommendation on the stock with a $55 target as he believes the group’s balanced business model is helping it grow tangible book value while facing industry pressures on loan origination profitability from higher interest rates.

Fintels’ recommendation trends are showing that there are 4x strong buy calls in the market, 5x buy calls and 4x hold calls.

Mr Cooper Group will next update investors during the release of fourth quarter results around the 10th of February.

This article originally appeared on Fintel