New Residential .S
We expect New Residential to continue to grow and to become one the best stocks to invest in 2022.
In our view, the company’s diversification will help it to better navigate through different interest rate scenarios. NRZ currently has more than $41 billion in assets. The investment portfolio is formed of mortgage servicing rights (MSRs), agency and nonagency securities, residential loans, mortgage securitization, and other non-mortgage lending investments.
RECENT DEVELOPMENTS
NRZ, rising 17.3%, while the S&P 500 has risen 29.2%. 12.1%. The company will report 4Q19 EPS in late January. The consensus calls for EPS of $0.52, compared to $0.58 a year earlier. Revenue is expected to decline 20% to $211 million. Estimates have been declining over the past quarter. New Residential recently reported 3Q EPS that fell short of the consensus forecast for the second quarter in a row. On October 25, the company reported 3Q19 EPS of $0.50, down from $0.63 a year earlier and $0.02 below consensus. Revenue declined 3.5% returns on core mortgage servicing rights (MSRs). On October 2, NRZ completed the acquisition of $62 billion of agency and nonagency MSRs from Ditech. It also added more than 1,000 Ditech employees to help expand its existing origination and servicing business.
EARNINGS & GROWTH ANALYSIS
New Residential operates Servicing and Originations, Residential Securities and Loans, and Consumer Loans. It also invests in real estate securities and residential mortgage loans, and consumer loans, including unsecured and homeowner loans. The acquisition of $62 billion in MSRs from Ditech has given NRZ more than $600 billion in total MSRs. Targeted yields for the portfolio are 12%-15%, with higher expectations for the servicing advance component. Based on NRZ’s year-to-date results and recent investment trends, we are setting EPS forecasts of $2.06 for 2021 and $2.11 for 2022.
NRZ followed a bullish trend triple-bottom near $14 in August-September 2020. We also current valuation does not fully capture the value of the operating businesses or the value of the call rights due to uncertainty about call timing and securitize called securities. NRZ also pays a $2.00 per share annual dividend.
U.S. Bancorp
Net charge-offs have yet to move materially higher as voluntary deferrals by USB and help from fiscal stimulus measures have thus far kept delinquencies under control. We also view the allowance for credit losses as very robust, and believe the second quarter marked the peak loss provisioning for the bank. Our positive long-term view assumes that a similar 58% of revenues, more stable payment revenues are 16% for USB ( the peer group), while more are only 3% the peer group). above-peer-average . Management did slightly modify its longer-term growth expectations from its 2022 forecast. 2-times tangible book value, versus a normal 1.8-times, which is above the average historical multiple of 1.3 for its large-cap regional bank peers.
On July 15, U.S. net revenue was flat at $5.8 billion. Noninterest income rose 5%, with strength in merchant processing and mortgage banking. Noninterest expense was up 5%, and net income fell 65% to $614 million.
EARNINGS & GROWTH ANALYSIS
For 2022, we are now modeling flat revenues, temporarily drew on lines of credit $2.7 billion of first-half loss provisions positions above-average earnings quality.
The company reports a tangible book value, with a sharp discount to the 1.8 average over the past two years, as bank shares have come under pressure on concerns about the impact of coronavirus shutdowns on credit costs. The stock trades at an elevated 15-times our depressed EPS estimate for 2021.
Barry Lachey is a Professional Editor at Zobuz. Previously He has also worked for Moxly Sports and Network Resources “Joe Joe.” He is a graduate of the Kings College at the University of Thames Valley London. You can reach Barry via email or by phone.
