On Tuesday, Keefe, Bruyette & Woods revised their stance on UWM Holdings Corp. (NYSE:UWMC), shifting the mortgage lender's stock rating from Underperform to Market Perform. The firm's analysis suggests that the potential downside for UWM Holdings' shares is now limited, prompting the adjustment in rating.
The change in rating comes amid expectations of another challenging year for the mortgage market in 2024. Despite these conditions, the firm believes that the current share price of UWM Holdings aligns closely with their 12-month total return estimate, which includes a $6 target price and an anticipated annual dividend of $0.40 per share.
The firm also sees a strategic opportunity in a pair trade of going long on UWM Holdings and short on Rocket Companies, Inc. (NYSE:RKT), especially leading into the first quarter earnings reports. This strategy is based on Rocket Companies' significant reliance on refinance volumes, which could be adversely affected if less than 10% of the mortgage market stands to benefit from potential rate cuts of 100 basis points.
UWM Holdings is considered to be in a comparatively better position than Rocket Companies due to its lower dependency on refinance volumes, which constitute approximately 15% of its overall volume, as opposed to Rocket's 50%. Furthermore, any reduction in rates could positively impact purchase volumes, as it may entice hesitant homebuyers with improved affordability.
Year-to-date performance comparison highlights that UWM Holdings' shares have not performed as well as Rocket Companies', with a decline of 11% compared to Rocket's 4% dip. Despite this, the firm's outlook for UWM Holdings has improved, leading to an upgrade in their stock rating.
InvestingPro Insights
The recent revision of UWM Holdings Corp. (NYSE:UWMC) by Keefe, Bruyette & Woods to a Market Perform rating aligns with some of the positive indicators from InvestingPro. Notably, the company boasts a high shareholder yield, a sign of its commitment to returning value to its investors. This is complemented by the fact that UWM Holdings pays a significant dividend, with a current yield of 6.32%, which is attractive to income-focused investors. Additionally, analysts predict profitability for the company this year, a turnaround from the previous twelve months.
InvestingPro data provides further context to the firm's analysis, showing a 29.27% price uptick over the last six months, indicating a strong recent performance in the market. Despite trading at a high Price/Book multiple of 89.79, the company's liquid assets exceed its short-term obligations, suggesting a stable financial position in the near term. With a fair value estimation by InvestingPro slightly above the current market price, at 6.11 USD, investors might find the current levels an interesting entry point.
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