On Wednesday, Keefe, Bruyette & Woods adjusted its price target for Ocwen Financial Corp (NYSE:OCN) shares, increasing it to $32.00 from the previous $28.00. The firm has maintained its Market Perform rating on the stock.
This decision follows the first-quarter earnings, leading to a revision in the 2024-2025 estimates, which now project a 5-7% increase primarily due to higher gross margins.
The firm's analysis forecasts a 5-7% delivery growth for Ocwen Financial in the next two years, with average gross margins anticipated to be between 23.5% and 24.7%.
This is slightly lower than the 24.8% margin reported in 2023 and notably below the 28.8% seen in 2022. The company has indicated that its long-run margin target of 22% may be adjusted upwards, a topic expected to be further discussed in upcoming investor day webcasts.
Keefe, Bruyette & Woods' outlook on the housing market remains unchanged, described as a "Sideways" thesis. The firm's stance is supported by the low resale inventory in the housing market and the fact that more than 90% of home mortgage borrowers currently have rates below 6%.
This environment is believed to contribute to the stability of the housing sector and the performance of companies like Ocwen Financial.
The new price target of $195, up from $180, is set at 1.5 times the tangible book value and 1.3 times the forward book value. These multiples are in line with mid-cap industry peers and are considered modestly attractive by the firm.
Despite the price target increase, Keefe, Bruyette & Woods continues to recommend a Market Perform rating for Ocwen Financial, expressing a preference for larger-cap peers in the current market conditions.
InvestingPro Insights
Keefe, Bruyette & Woods' recent price target adjustment for Ocwen Financial Corp (NYSE:OCN) is echoed by some intriguing metrics and InvestingPro Tips. Notably, analysts predict that Ocwen Financial will be profitable this year, with net income expected to grow. This aligns with the firm's revised estimates following first-quarter earnings. Furthermore, the stock is currently trading at a low P/E ratio of 31.33 relative to near-term earnings growth, suggesting that it may be undervalued in terms of its growth potential. This is particularly interesting given the firm's anticipation of a 5-7% delivery growth for Ocwen.
InvestingPro Data also reveals that Ocwen has seen a significant return over the last week with a 12.33% price total return, which may catch the attention of investors looking for short-term gains. Additionally, the company's liquid assets exceed its short-term obligations, indicating a solid liquidity position that could reassure investors about the company's financial health in the near term.
For those considering a deeper dive into Ocwen Financial's prospects, there are 11 additional InvestingPro Tips available, which could provide further insights into the company's valuation, stock price volatility, and dividend policy. To access these tips and more detailed analysis, visit InvestingPro. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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