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Can Interest Income Drive Rithm Capital's (RITM) Q4 Earnings?

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Rithm Capital Corp. (RITM - Free Report) is poised to surpass fourth-quarter 2023 earnings expectations. The results, to be announced on Feb 7, before the opening bell, are anticipated to reflect sustained growth in interest income and Newrez business strength contributing to its performance.

Earnings Surprise History

Rithm’s earnings beat the consensus estimate in all the prior four quarters, with the average being 44%. This is depicted in the graph below:

Rithm Capital Corp. Price and EPS Surprise

Rithm Capital Corp. Price and EPS Surprise

Rithm Capital Corp. price-eps-surprise | Rithm Capital Corp. Quote

In the last reported quarter, the leading capital provider reported adjusted operating earnings per share of 58 cents, beating the Zacks Consensus Estimate by 70.6% due to higher net servicing revenues, a significant increase in interest income as well as the solid contribution from Servicing as well as Residential Securities, Properties and Loans units. However, the upside was partly offset by an elevated expense level.

What the Quantitative Model Suggests

Our proven model predicts a likely earnings beat for Rithm Capital this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is precisely the case here.

Earnings ESP: The company has an Earnings ESP of +4.97%. This is because the Most Accurate Estimate currently stands at 37 cents, higher than the Zacks Consensus Estimate of 35 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Rithm currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Now, let’s see how things have shaped up prior to the fourth-quarter earnings announcement.

Factors Driving Q4 Performance

Higher fees, interest income and multiple acquisitions are expected to have supported its revenue growth. The consensus estimate for Rithm’s fourth-quarter revenues is pegged at $887 million, indicating a 16.4% rise from the year-ago reported figure of $762.4 million.

The high interest rate environment is expected to have supported Rithm in generating enhanced returns from specific investments and consumer loans. The Zacks Consensus Estimate for fourth-quarter interest income reflects impressive 24.6% year-over-year growth.

The growing profitability of its Newrez business is likely to have aided its Origination & Servicing segment. Also, the Zacks Consensus Estimate for fourth-quarter net gain on originated residential mortgage loans indicates a 32.6% year-over-year increase.

The above-mentioned factors are expected to have positioned the company for year-over-year growth and a likely earnings beat. The Zacks Consensus Estimate for fourth-quarter earnings per share of 35 cents suggests an increase of 6.1% from the prior-year reported number.

However, the estimated figure has witnessed one downward movement in the past week against no upward revisions. The consensus mark for net servicing revenues implies a 6% fall from the prior-year figure, likely due to higher discount rates, partially offsetting the upside.

Also, the higher average interest rates are likely to have increased its Interest expense and warehouse line fees in the quarter under review. Higher general and administrative expenses are expected to have partly undone the impact of lowering compensation and benefits. Nevertheless, its hedging strategies are likely to have provided some protection from the burden of increasing interest expenses.

Other Stocks That Warrant a Look

Here are some other companies worth considering from the broader Finance space, as our model shows that these, too, have the right combination of elements to beat on earnings this time around:

Coinbase Global, Inc. (COIN - Free Report) has an Earnings ESP of +166.67% and a Zacks Rank of 3.

The Zacks Consensus Estimate for Coinbase’s bottom line for the to-be-reported quarter suggests a 97.6% year-over-year improvement. The estimate improved by 13 cents over the past month. COIN beat earnings estimates in three of the past four quarters and missed once, with an average surprise of 63%.

XP Inc. (XP - Free Report) has an Earnings ESP of +4.76% and is a Zacks #3 Ranked player.

The Zacks Consensus Estimate for XP’s bottom line for the to-be-reported quarter indicates a 40% year-over-year increase. The estimate increased by 2 cents over the past 60 days. Furthermore, the consensus mark for XP’s revenues is pegged at $814 million, suggesting 34.8% growth from a year ago.

Brookfield Asset Management Ltd. (BAM - Free Report) has an Earnings ESP of +0.69% and a Zacks Rank of 2.

The Zacks Consensus Estimate for Brookfield Asset Management’s bottom line for the to-be-reported quarter indicates 9.7% growth from the year-ago period. BAM beat earnings estimates twice in the past four quarters and missed on the other two occasions, with an average surprise of 0.2%.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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