The housing market in the United States has been calling the shots in a pivotal story; investors are witnessing a bottoming in everything surrounding Real Estate. These trends will challenge the rising mortgage rate fears, which were supposed to send the market crashing down.
A pretty simple call is being made today by analysts and markets alike regarding the last - or close to last - link in the value chain within the real estate industry. Mortgage companies are getting a boost from the most recent U.S. new home sales data.
More homes are set to hit the market during this quarter as well, considering that housing starts (new construction) rose by 22% in May, implying a wave of new homes that need to be sold is about to hit. Mortgages are lining up to finance these new units, and these three mortgage firms are set to pop during this new demand.
Walker & Dunlop
A good management team often tells investors the good, bad, and ugly. In the case of Walker & Dunlop (NYSE:WD), management has opened the second quarter 2023 earnings presentation with a harsh truth regarding the underlying industry trends.
Transaction volumes declined from June of 2022 to June of 2023 by as much as 63%; this contraction stems from the aggressive rise in the cost of financing mortgages. As the U.S. inflation rate ran rampant during 2022, the FED was forced to hike interest rates to cool the economy.
Mortgage rates rose from roughly 1.25% twelve months ago to today's approximate 7.5%. This tightening greatly impacted the earnings potential for Walker & Dunlop, and the company's stock chart is a mirror image of the same decline.
There is a reason why Warren Buffett has recently bought into homebuilder stocks, expecting higher demand and construction activity in the months to come. Walker & Dunlop has analysts drooling over its place in the sun as a mortgage provider to these coming units.
Analyst ratings point to a consensus price target of $107.5 a share, implying a promising 30% upside potential from today's prices. Investors need to answer the question: Are earnings expected to rise due to this demand injection?
Earnings per share projections are set for a 19.2% growth spur for 2024; all else equal, the stock price should reflect a similar rise in valuation, especially considering that EPS typically drives stock prices.
Considering that transactions at Walker & Dunlop's transaction volumes rose by 25% over the first and second quarters of 2023, investors can now see that the momentum in real estate is trickling down to this name, justifying analysts' excitement and bullish views.
United Wholesale Mortgage
Scalability can make a difference across any business, and mortgage financing is no exception. United Wholesale Mortgage (NYSE: UWMC) has shaken off the interest rate hike effects due to its deep networks of services and products, giving investors a bit of a 'recession-proof' feeling.
Over the past twelve months, transaction volume at United Wholesale jumped by 6.5%, almost ten times better than Walker & Dunlop. The more impressive factor comes from the quarter-to-quarter increase reported in the latest financial press release.
Despite a flattish stock price pattern, this company is making breakthroughs past industry averages. A 42% jump in transaction volume over the past quarter shows the current demand for mortgages and why winning stocks surrounding real estate is the place to be right now.
This stock is pregnant with tremendous upside potential in the next twelve months. EPS expectations for 2024 would suggest a massive jump of 90% to 100%. Again, all else being equal, United Wholesale stock should also double should these expectations prove correct.
Christmas may have come early for Mr. Cooper (NASDAQ: COOP) investors, as the stock has risen by as much as 26.6% during the past twelve months. However, plenty of factors still point to a strong probability of this stock making new highs in the coming months amid improving industry dynamics.
Compared to the transaction volumes analyzed in previous names, loan originations grew by 40% over the past quarter for Mr. Cooper. The second quarter 2023 earnings results will show investors that earnings momentum is rising faster than most had thought.
Money likes growth, and markets typically reward stocks with a reasonable promise of delivering advances. In the case of Mr. Cooper, analyst ratings are agreeing on a consensus price target of $62.6 a share, implying yet another double-digit upside potential return for the industry.
Growth expectations are also in place for this name, considering that analysts are guiding for a 29.6% EPS jump for 2024. Management seems to align with these expectations, as they have approved a $200 million share repurchase program.
A willingness to buy back stock in bulk can lead to a simple conclusion: management sees enough upside in the stock's future to use company funds to buy it. It can also mean that insiders believe the price to be undervalued today, giving investors confidence.