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Mortgage & Related Services Outlook: Near-Term Prospects Rosy
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The Zacks Mortgage & Related Services industry consists of firms that provide mortgage-related loans, refinancing and other loan servicing facilities. Players in this industry are somewhat dependent on the interest rates determined by the Federal Reserve, as prevailing rates influence customers’ decision to take mortgage.
The companies also generate investment income by investing in several financial assets such as residential or commercial mortgage-backed securities, and asset-backed securities. The firms also make equity investments in mortgage-related entities, among others.
Let’s delve deeper in the industry’s three major themes:
The central bank’s accommodative monetary policy stance on interest rate has provided respite to mortgage lenders as decline in interest rates increases demand for loan originations or refinancing by making cost of borrowing comparatively less expensive. Also, considering the current expectations of future rate cuts, more near-term respite is expected for lenders.
Though lower mortgage rates will raise demand for homes in the United States, persistent trade war concerns, expected slowdown in global economy and softening U.S. labor market might make some consumers cautious. Also, with expectations of more rate cuts in 2019, some consumers might hold on to their current mortgages with a motive to tap future lower rate.
Digitization, though picked pace late in the mortgage industry, is now at its peak and has helped the companies enhance customer experience, lowered costs by saving compensation expenses and reduced the possibility of frauds.
Zacks Industry Rank Reflects Bright Prospects
The Zacks Mortgage & Related Services industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #17, which places it at the top 7% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since January 2019 end, the industry’s earnings estimate for the current year has been revised slightly upward.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Mortgage & Related Services industry has underperformed the Zacks S&P 500 composite over the past two years, though it has outperformed the broader Zacks Finance sector.
The industry has registered growth of 5.8% during this period compared with the S&P 500’s rally of 19.1%. The broader sector has witnessed growth of roughly 2%.
Two-Year Price Performance chart
Industry’s Valuation
On the basis of price-to-book ratio (P/BV), which is commonly used for valuing mortgage loan providers, the industry currently trades at 2.15X compared with 4.05X for the S&P 500.
This compares to the industry’s highest P/BV of 2.76X and median of 1.93X over the past five years.
Price-to-Book Ratio (TTM) Chart
As finance stocks typically have a lower P/BV ratio, comparing mortgage loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/BV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/BV of 2.69X for the same period is way above the Zacks Mortgage & Related Services industry’s ratio, as the chart shows below.
Price-to-Book Ratio (TTM) Chart
Bottom Line
Mortgage & Related Services stocks are likely to reap benefits from relatively lower interest rates and favorable operating environment. Also, with upsurge in demand for refinancing, mortgage business is likely to prosper. Further, the companies in this space have been venturing out for other sources of income, and are building up on the technological front.
We are presenting three stocks that investors may consider betting on, as they have been seeing positive earnings estimate revisions, and have solid long-term growth potential.
PennyMac Financial Services, Inc. (PFSI - Free Report) : The consensus estimate for current-year earnings for this Moorpark, CA-based financial service provider has moved 25.8% higher over the past 60 days. The stock has rallied 77.6% over the past 24 months. The stock currently flaunts a Zacks Rank #1 (Strong Buy).
Essent Group Ltd. (ESNT - Free Report) : The stock of this Hamilton, Bermuda-based lender has gained 23.7% over the past two years. The Zacks Consensus Estimate for the current-year earnings has been revised 3.8% upward over the past 60 days. The stock currently carries a Zacks Rank #2 (Buy).
Price and Consensus: ESNT
Walker & Dunlop, Inc. (WD - Free Report) : The Bethesda, MD-based bank has rallied 21.8% over the past two years. The consensus estimate for current-year earnings has been revised slightly upward over the past 60 days. The stock currently carries a Zacks Rank #2.
Price and Consensus: WD
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.
Image: Bigstock
Mortgage & Related Services Outlook: Near-Term Prospects Rosy
The Zacks Mortgage & Related Services industry consists of firms that provide mortgage-related loans, refinancing and other loan servicing facilities. Players in this industry are somewhat dependent on the interest rates determined by the Federal Reserve, as prevailing rates influence customers’ decision to take mortgage.
The companies also generate investment income by investing in several financial assets such as residential or commercial mortgage-backed securities, and asset-backed securities. The firms also make equity investments in mortgage-related entities, among others.
Let’s delve deeper in the industry’s three major themes:
Zacks Industry Rank Reflects Bright Prospects
The Zacks Mortgage & Related Services industry, which is housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #17, which places it at the top 7% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of solid earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since January 2019 end, the industry’s earnings estimate for the current year has been revised slightly upward.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Mortgage & Related Services industry has underperformed the Zacks S&P 500 composite over the past two years, though it has outperformed the broader Zacks Finance sector.
The industry has registered growth of 5.8% during this period compared with the S&P 500’s rally of 19.1%. The broader sector has witnessed growth of roughly 2%.
Two-Year Price Performance chart
Industry’s Valuation
On the basis of price-to-book ratio (P/BV), which is commonly used for valuing mortgage loan providers, the industry currently trades at 2.15X compared with 4.05X for the S&P 500.
This compares to the industry’s highest P/BV of 2.76X and median of 1.93X over the past five years.
Price-to-Book Ratio (TTM) Chart
As finance stocks typically have a lower P/BV ratio, comparing mortgage loan providers with the S&P 500 may not make sense to many investors. But a comparison of the group’s P/BV ratio with that of its broader sector ensures that the group is trading at a decent discount. The Zacks Finance sector’s trailing 12-month P/BV of 2.69X for the same period is way above the Zacks Mortgage & Related Services industry’s ratio, as the chart shows below.
Price-to-Book Ratio (TTM) Chart
Bottom Line
Mortgage & Related Services stocks are likely to reap benefits from relatively lower interest rates and favorable operating environment. Also, with upsurge in demand for refinancing, mortgage business is likely to prosper. Further, the companies in this space have been venturing out for other sources of income, and are building up on the technological front.
We are presenting three stocks that investors may consider betting on, as they have been seeing positive earnings estimate revisions, and have solid long-term growth potential.
PennyMac Financial Services, Inc. (PFSI - Free Report) : The consensus estimate for current-year earnings for this Moorpark, CA-based financial service provider has moved 25.8% higher over the past 60 days. The stock has rallied 77.6% over the past 24 months. The stock currently flaunts a Zacks Rank #1 (Strong Buy).
(You can see the complete list of today’s Zacks #1 Rank stocks here.)
Price and Consensus: PFSI
Essent Group Ltd. (ESNT - Free Report) : The stock of this Hamilton, Bermuda-based lender has gained 23.7% over the past two years. The Zacks Consensus Estimate for the current-year earnings has been revised 3.8% upward over the past 60 days. The stock currently carries a Zacks Rank #2 (Buy).
Price and Consensus: ESNT
Walker & Dunlop, Inc. (WD - Free Report) : The Bethesda, MD-based bank has rallied 21.8% over the past two years. The consensus estimate for current-year earnings has been revised slightly upward over the past 60 days. The stock currently carries a Zacks Rank #2.
Price and Consensus: WD
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 7 stocks to watch. The report is only available for a limited time.
See 7 breakthrough stocks now>>