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Value, Momentum, and Growth? This Mid-Cap Financial Stock has it All
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While going through the new additions to the Zacks Rank this morning I came across a particularly appealing stock – PennyMac Financial Services (PFSI - Free Report) .
This stock seems to have it all with a top Zacks Rank, discount valuation, impressive growth, and a compelling technical momentum setup.
Over the last five years PennyMac Financial Services has compounded at 31.8% annually, far outperforming both the broad market and its industry.
Image Source: Zacks Investment Research
Company Description
PennyMac Financial Services is a leading mortgage lending and servicing company based in the US. It operates through two primary segments: Loan Production and Loan Servicing. In the Loan Production segment, PennyMac originates, purchases, and sells mortgage loans, catering to homebuyers, homeowners, and investors.
The Loan Servicing segment involves the servicing and management of mortgage loans, including collecting payments, handling escrow accounts, and assisting customers with loan-related inquiries.
Considering the challenges that a rapidly rising interest rate environment presented in the last two years, PennyMac has remained resolute, with the stock holding up well even as sales and earnings took a dip. But that challenging period is expected to pass as sales and earnings are projected to rocket higher in the coming quarters and years.
Image Source: Zacks Investment Research
Earnings Revision Trend
In the chart below we can see that the earnings revision trend rolled over quite hard during the last year, as persistently high interest rates slowed mortgage sales significantly. But that trend is shifting, and we can see that earnings revisions have begun to perk up.
Analysts have revised FY24 and FY25 earnings estimates 1.2% and 0.3% higher over the last month giving PFSI a Zacks Rank #1 (Strong Buy) rating.
Image Source: Zacks Investment Research
Technical Setup
After staging a huge rally in Q4 of 2023, PennyMac Financial stock has been building out a bull flag. If the stock can clear the $93.25 level, it would signal a technical breakout and likely send the stock on another major bull run.
Image Source: TradingView
Valuation
Making PennyMac Financial Services even more compelling is its very reasonable valuation. At 8.7x one year forward earnings it is well below the industry average.
But even more interesting is how cheap it is compared to its growth forecasts. EPS are projected to grow 14.6% annually over the next 3-5 years, which means that PFSI has a PEG ratio of 0.6. Based on the metric this is a below value security.
Image Source: Zacks Investment Research
Bottom Line
Higher interest rates and commercial real estate fears have ripped through the small and mid-cap financial sector, pricing in some of the worst expectations in a decade. But now that all the bad news has been priced in, that bearish sentiment is creating opportunity.
With a persistently strong economy and forecasts of rate cuts in the near future, mortgage volumes are on the verge of picking up, and PennyMac Financial Services is an industry leading name.
For investors looking to add exposure in the form of Financials, PennyMac is a worthy consideration.
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Value, Momentum, and Growth? This Mid-Cap Financial Stock has it All
While going through the new additions to the Zacks Rank this morning I came across a particularly appealing stock – PennyMac Financial Services (PFSI - Free Report) .
This stock seems to have it all with a top Zacks Rank, discount valuation, impressive growth, and a compelling technical momentum setup.
Over the last five years PennyMac Financial Services has compounded at 31.8% annually, far outperforming both the broad market and its industry.
Image Source: Zacks Investment Research
Company Description
PennyMac Financial Services is a leading mortgage lending and servicing company based in the US. It operates through two primary segments: Loan Production and Loan Servicing. In the Loan Production segment, PennyMac originates, purchases, and sells mortgage loans, catering to homebuyers, homeowners, and investors.
The Loan Servicing segment involves the servicing and management of mortgage loans, including collecting payments, handling escrow accounts, and assisting customers with loan-related inquiries.
Considering the challenges that a rapidly rising interest rate environment presented in the last two years, PennyMac has remained resolute, with the stock holding up well even as sales and earnings took a dip. But that challenging period is expected to pass as sales and earnings are projected to rocket higher in the coming quarters and years.
Image Source: Zacks Investment Research
Earnings Revision Trend
In the chart below we can see that the earnings revision trend rolled over quite hard during the last year, as persistently high interest rates slowed mortgage sales significantly. But that trend is shifting, and we can see that earnings revisions have begun to perk up.
Analysts have revised FY24 and FY25 earnings estimates 1.2% and 0.3% higher over the last month giving PFSI a Zacks Rank #1 (Strong Buy) rating.
Image Source: Zacks Investment Research
Technical Setup
After staging a huge rally in Q4 of 2023, PennyMac Financial stock has been building out a bull flag. If the stock can clear the $93.25 level, it would signal a technical breakout and likely send the stock on another major bull run.
Image Source: TradingView
Valuation
Making PennyMac Financial Services even more compelling is its very reasonable valuation. At 8.7x one year forward earnings it is well below the industry average.
But even more interesting is how cheap it is compared to its growth forecasts. EPS are projected to grow 14.6% annually over the next 3-5 years, which means that PFSI has a PEG ratio of 0.6. Based on the metric this is a below value security.
Image Source: Zacks Investment Research
Bottom Line
Higher interest rates and commercial real estate fears have ripped through the small and mid-cap financial sector, pricing in some of the worst expectations in a decade. But now that all the bad news has been priced in, that bearish sentiment is creating opportunity.
With a persistently strong economy and forecasts of rate cuts in the near future, mortgage volumes are on the verge of picking up, and PennyMac Financial Services is an industry leading name.
For investors looking to add exposure in the form of Financials, PennyMac is a worthy consideration.