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PHH Corporation

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Positive earnings estimate revisions heading into the third quarter earnings release helped PHH Corporation hit a new 52-week high and achieve a Zacks #1 Rank (Strong Buy) on October 9. With a solid year-to-date return of 95.3% and an expected long-term earnings growth rate of 6%, this provider of business process management services offers an attractive investment opportunity.

Q3 Release Coming Up

PHH Corporation is expected to release its third quarter earnings on October 29. The Zacks Consensus Estimates are for earnings of 66 cents per share on revenue of $702.0 million. The company has surpassed profit expectations in two out of the last four quarters.

On August 7, PHH Corporation reported second quarter 2012 earnings of 49 cents per share, which fell short of the Zacks Consensus Estimate and last year’s result. Escalated total expenses were partially offset by higher net revenues recorded.

Net revenues increased 8.3% year over year to $559.0 million. Mortgage fees climbed to $83.0 million from $56.0 million in the year-ago quarter. However, fleet lease income contracted marginally to $338.0 million. Additionally, the company's total expenses jumped 9.8% to $639.0 million over the same period.

Earnings Momentum on the Rise

The Zacks Consensus Estimate for 2012 advanced 2.9% to $2.80 per share over the last 60 days. For 2013, the Zacks Consensus Estimate climbed 10.3% to $2.35 per share.

Valuation Looks Attractive

PHH Corporation currently trades at 7.9x 12-month forward earnings, a 13% discount to the peer group average of 9.1x. Its price to book ratio of 0.8 is at a 47% discount to the peer group average of 1.5.

The company has a trailing 12-month ROE of 13.3%, compared with the peer group average of 10.9%. This implies that the company reinvests its earnings more efficiently than its peer group.

Chart Shows Strength

PHH Corporation has witnessed strong price momentum since August 8. Moreover, the company has been continuously outperforming its 200-day and 50-day moving averages since August 2012. The year-to-date return for the stock is 95.3%, compared with the S&P 500’s return of 14.6%.

Headquartered in Mount Laurel, New Jersey, PHH Corporation provides business process management services for the mortgage and fleet industries in the United States and Canada. The company was founded in 1946 and had over 580,000 automobiles and trucks under management in both sales and service fleets as of June 30, 2012. With a market capital of about $1.27 billion, PHH Corporation competes with Ocwen Financial Corp. (OCN), among others.

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