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Analysts Still Love Nationstar After 17% Drop (Update 2)

Miller in a client note lowered his 2014 EPS estimate for Nationstar to $5.00 from $7.50.

Miller sees plenty of opportunity for Nationstar to unlock more value for investors by "creating more tax efficient capital vehicles" or through a spinoff of Solutionstar.

Credit Suisse analyst Douglas Harter also maintained an "outperform" rating on Nationstar, while lowering his price target to $46 from $62. "Our target price represents a 9.6x multiple on 2014 EPS estimate based on sum of the parts for servicing, originations, and Solutionstar," Harter wrote in a note to clients. He emphasized that his price target really is a 12-month target, since "Nationstar will need to execute improving servicing cash flows and progress on a Solutionstar spin before we see upside to the stock."

Other Opinions

Sterne Agee analyst Henry Coffee on Friday downgraded Nationstar to a "neutral" rating from a "buy" rating, while lowering his price target to $45 from $60. Coffee estimates Nationstar will earn $5.00 a share in 2014.

"We are stepping to the sidelines to wait while the company reconfigures its operating platform to adjust to new origination targets, the closing of excess facilities, etc.," Coffee wrote.

But even after the downgrade, Coffee struck a somewhat positive tone.

"In addition to the prospects of additional new servicing, there are two other factors that could drive the shares higher: a) reduction in corporate debt. The company needs to evolve into a business that can grow revenue and EPS without increasing leverage; b) a reconfiguration of the servicing business into a structure that lowers the serving company's tax rate from 38% to an estimated 10%. The first item is critical in our view; the second worth noting," Coffee wrote.

Morgan Stanley analyst Cheryl Pate on Friday downgraded Nationstar to "equal-weight" from "overweight," with a price target of $38.

"Lower profitability in the originations business is the key driver to our reduced 2014e EPS of $4.30," Pate wrote in a note to clients. That's the lowest 2014 EPS ratio among the analysts listed here.

"We expect continued pressure on gain on sale margins, partially offset by a higher consumer mix, and lower overall volumes with the sale to Stonegate. Additionally, we think it will take some time to get to the 125bps of core pre-tax profitability in originations that management targets as the cost base is right-sized," Pate wrote.

NSM Chart NSM data by YCharts

Interested in more on Nationstar Mortgage Holdings? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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