Ocwen Financial's (OCN) 1Q08 earnings of $5.9 million or $0.09 per share were slightly short of estimates. The revenues increased 6.6% sequentially due to higher process management fees and servicing fees while the operating expenses were down 15.9%. The company was also able to moderate the rise in delinquencies during the quarter, but we suspect that the continued deterioration in the housing market -- leading to decline in originations and increase in borrower defaults, coupled with the liquidity issues -- will continue to challenge OCN in the near-to-medium term.
After reviewing the results, we are reducing our FY08 and FY09 estimates to $0.56 per share and $0.67 per share, respectively. Our recommendation on the shares of OCN remains unchanged at Hold.
OCN currently trades at 10.5 times the consensus forward estimate (versus 7.6 times at the time of our last report), a 38% discount to the peer group median (versus a 57% discount at that time). It also should be noted that the peer group is not a perfect fit, and we see no pure-play comparison for OCN. Also, the peer group has shrunk recently due to mergers and other issues.
On a price-to-book basis, the shares trade at an 81% discount to the peer median, versus the same in February 2008. Against the existing peer group, relative pricing continues to look attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. OCN's PEG ratio is now 0.87 (up from 0.64), a 30% discount to the 1.25 median for the peer group (versus a 46% discount previously).
Additionally, the quantitative Zacks Rank for OCN is currently 4 (down from 3 on February 14, 2008), indicating slight downward pressure on the shares over the near term. Short interest is currently 10.5 days, versus 6.9 days previously.
Read the full analyst report on OCN.
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