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Here's Why Ocwen (OCN) Stock Surged 25% Despite Q2 Loss

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Shares of Ocwen Financial Corp. (OCN - Free Report) increased 25% in the after-market trading, following the release of its second-quarter 2016 results. Lower-than-expected adjusted loss of 2 cents per share was one of the reasons for the price rise. The Zacks Consensus Estimate was a loss of 49 cents.

Other than this, the reported quarter witnessed first sequential increase in revenue since the first quarter of 2015. These factors cheered the investors, leading to a surge in share price in  after-hours trading. Notably, the price reaction during today’s full trading will offer a better view about how investors accepted the results.

Decrease in operating expenses, depicting continued efforts to control costs, along with lower other expenses were the tailwinds. However, a fall in servicing and sub-servicing fees pressured revenues, which remains a major concern.

 

Ocwen Financial Corporation (OCN - Free Report) EPS BNRI & Surprise Percent - Last 5 Quarters | FindTheCompany


Ocwen’s results were adversely impacted by several significant items. After including these, net loss was $87.2 million or 71 cents per share, as against net income of $9.7 million or 8 cents per share in the prior-year quarter.

Lower Adjusted Costs Marginally Offset Revenue Decline

Total revenue slumped 19.5% year over year to $373.1 million. Lower servicing and sub-servicing fees and gain on loans held for sale were partially offset by improvement in other revenues. However, the figure beat the Zacks Consensus Estimate of $321.2 million.

Total expenses increased 9.3% from the year-ago quarter to $385 million. Notably, expenses (on an adjusted basis) declined 18% year over year, reflecting the reduction in the size of the servicing portfolio and the progress in ongoing cost improvement efforts.

Net other expenses fell 14.3% year over year to $84.4 million, mainly due to lower net gains on sale of MSRs and decrease in interest expense.

As of Jun 30, 2016, Ocwen recorded a cash balance of $218.9 million, down from $257.3 million as of Dec 31, 2015. Total assets were $7.5 billion, up from $7.4 billion as of Dec 31, 2015.

Our Take

Ocwen’s initiatives to restructure its servicing portfolio and strengthen its balance sheet by reducing corporate debt are impressive. We believe the company will be able to suitably leverage the opportunities available for streamlining its servicing portfolios, going forward.

However, we remain concerned about the impact of mounting compliance and monitoring expenses, apart from the endless regulatory probes into the company’s near-term financials.

OCWEN FINL CORP Price, Consensus and EPS Surprise

OCWEN FINL CORP Price, Consensus and EPS Surprise | OCWEN FINL CORP Quote

Currently, Ocwen carries a Zacks Rank #3 (Hold).

Among other mortgage investment firms, Ares Capital Corporation (ARCC - Free Report) will report on Aug 3, Main Street Capital Corporation (MAIN - Free Report) on Aug 8 and Garrison Capital Inc. on Aug 9.

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