Non-bank lender Mr. Cooper Group (US:COOP) reported first-quarter results this past week that pleased market expectations, prompting a 4.3% increase in the stock’s price in the days that followed.

The company, which operates mainly under the Mr. Cooper and Xome brands, reported adjusted earnings per share of $1.18, beating consensus expectations of around $1.06 per share.

The stock has continued its medium-term track record of beating market expectations despite an ever-changing backdrop in financing markets.

Guidance Looks Good

Total group revenues grew by around 10% to $330 million with total expense falling from $292 million to $261 million, resulting in bottom-line net income growing from $1 million in 2022 to $37 million this year.

The Servicing segment was the clear outperformer, generating strong adjusted earnings before tax of $157 million. That puts the company in a good position to achieve its guidance as profitability remains strong.

The segment UPB value  — the unpaid principal balance portion of a loan at a certain point in time that has not yet been remitted to the lender  — decreased by 2% from the previous quarter to $853 million, driven by shrinking balances in the subservicing portfolio.

Some Street analysts highlighted that the segment is thriving in the current environment where borrowers are looking to refinance a better mortgage rate where possible.

The Originations segment swung from a pretax operating loss of $2 million last quarter to a profit of $23 million, surprising many investment houses in the market with the beat.

Management indicated to investors that the segment benefitted from the rise in mortgage rates late in the quarter, which elevated direct-to-consumer results. The company funded 10,177 loans in the quarter, totaling $2.7 billion UPB, consisting of $1.4 billion in direct-to-consumer and $1.3 billion in correspondent.

Fintel’s financial metrics and ratios page for COOP shows that cash generated from operating activities has declined in recent quarters but remains positive showing healthy operating conditions.

CEO Jay Bray praised the company’s balanced business model and robust capital, liquidity, and strong asset quality that positioned it well to deploy capital into growth opportunities. He expressed optimism about the future, noting the opportunities to grow its customer base while focusing on positive operating leverage to generate higher returns.

Mr. Cooper has managed to maintain a strong financial position despite the pandemic, positioning it well for the post-pandemic recovery. The first-quarter results show that the company is capable of sustaining its strong financial performance in the face of challenging economic conditions.

Traditional Metrics Down

When measuring management’s effective performance measures, we can see that traditional measures such as ROE & ROIC are showing declining performance from highs in 2021.

However, on an operating cash return on investor capital (OCROIC – Fintel created metric), we can see that management is continuing to generate healthy underlying returns.

COOP’s balanced business model and strong financial position, along with its focus on positive operating leverage, make it well-positioned to capitalize on growth opportunities in the future as the loan market continues to experience volatile times.

Analysts Outperformance Expectations

Wedbush analyst Jay McCanless said that COOP should continue to grow profitability over time as the servicing portfolio grows with increasing efficiency. The analyst maintained his ‘outperform’ rating on the stock and $55 target price, noting that the increased size of the MSR hedge should help protect the group’s book value in the event of lower rates.

The shares gained 13% in the last month, closing out April at $46.30 a piece.

Fintel’s consensus target price of $55.66 suggests analysts think the stock could rise 20% this year if operations continue tracking as planned.

This article originally appeared on Fintel

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